Dr. Emmanuel Okoroafor is Executive Director at Hobark International Limited, a Nigerian oil service company with international prominence. In this chat with SOPURUCHI ONWUKA, he outlines business strategies that underpin the company’s distinction in service delivery. He says that Hobark is taking unique advantage of the local content policy to cut cost, import technology and deliver world class quality. He also calls on government to enhance local business environment to allow investors propel economic development.
Yes, it is true that the industry is hurting and a lot of service firms have even gone out of business but Hobark is structured in a way that makes its business sustainable over a long time. We are not into a business of cash and carry.
Hobark has virtually created a service web across the industry value chain. May we share some of the internal synergies that drive your growth?
Hobark, as you are probably aware, is made up of five subsidiaries offering different services; but now we have set up what we call IPM-Integrated Project Management-that combines the services of all these companies to provide a one stop shop for the clients. Again, the services could be training services, procurement, security, drilling rig procurement services and project management solutions to clients. We can bring all these services together to relieve the client of all ancillary burdens and enable them concentrate on their core business. That is where we differ from other companies in the service sector. We have many companies that can provide single services to clients and we felt we can bring all the services together to provide one stop service shop for our group clients, reducing costs and enabling the clients to concentrate on what matters to them.
Your company declared moves to acquire new rigs but now that activity is very low in the local industry space, have you any outlook on the commercial viability of deep pocket rig acquisitions under the prevailing low exploration realities?
Talking about the viability of our rig investments, I can tell you that the only dependable land rigs running at Shell’s fields in Nigeria belong to us. It is not in partnership; it belongs to us. And right now we are tendering with partners for jack up and deep water rigs. We are still working on it and I am pretty sure that we will sign the contract very soon and things will start moving in that direction. Right now we have a rig for Shell and it is in operation.
You sound upbeat at a time other service providers lament the downtime in industry field activities. From where do you draw your strength?
Our business is structured in a way that makes it sustainable over a long time. We are not into a business of cash and carry. Yes, it is true that the industry is hurting and a lot of service firms have even gone out of business but we manage to maintain what we have because of the way we manage our business. The new rigs I talked about that are jack-up and deep offshore are dependent on award of contracts. But for now we have already secured a rig working doe Shell. The only rig in Nigeria running for Shell belongs to us, and that tells you how unique we are in running our operations and the value we deliver to our clients.
With the advantage you have, do you see fleet enlargement opportunity in the move by your competitors to sell off their rig units?
We are looking at those opportunities but, obviously, we have to look at the cost. If it makes sense to buy we will buy but if doesn’t, then not. You have to bear in mind that anyone who buys a rig when the crude barrel was $100+ will not want to sell it at a time a barrel of crude is about $30. They will be losing a lot of money. So we are looking at every opportunity. Obviously we are in a business to stay for a long time. So we are not looking at short time advantages and opportunities. We take time to explore what is sustainable, and we are very prudent with our growth strategies. So we are talking about acquisition of new rigs, not the ones people want to sell off. You see, old rigs come with a lot of troubles. They are like used cars. When you buy a used car, you are at the mechanic’s workshop every day, but when you buy a new car, you spend three, four years without any significant maintenance or downtime. We are looking at opportunities to buy from those willing to sell. Like I said, if the rig is good and it comes at good price, then we look at it so long as we have projects into which to deploy the rigs.
The profit end of the industry is moving downstream with the falling crude oil prices, and acute supply gaps in Nigeria’s fuel market offers great incentive for refining. With your diversification strategy across the full business chain, do you think a leg into refining might be right at this point in time?
For now, we are not looking at downstream part of the business even though we can’t rule that entirely out. We are still focused on the upstream because things will soon pick up. We have divisions that are quietly undertaking studies in the downstream to see where we can come in but it is not our main focus at the moment. We are just looking at downstream to see whether there might be opportunities we might tap into, but we are not considering it as a major point of focus for now. Absolutely, the upstream is not dead. It is going to spring up by the end of this year.
One of the things we are doing to reduce cost for our clients is to provide them things that are local to where they operate. A good example is Nigeria. We have toured the world-UK, Aberdeen, Norway, Stavanger, North America-looking for suitably qualified Nigerians to bring home. And they are far cheaper than expatriates; and by so doing we reduce cost for our clients. Also bear in mind that these Nigerians coming from overseas are also importing technology because they have been exposed to global experience. Also, assembling qualified staff from across the world builds a pool of technical diversity.
You are talking of acquiring deepwater rigs and also exploring opportunities of acquisition of existing local rigs. What is the budget profile for these acquisitions?
Everything depends on the clients we work with. So, we are still in discussions with our clients. We look at what their plans are and we use it to gauge what investments that would be necessary to position to deliver on orders. We are not operators, so we don’t have definite investment budget for rig acquisitions. Everything is determined by job orders from the clients. So, everything depends on what the operating companies are doing. We use their operations to gauge what we should be doing; and now things are not stable enough to form reliable basis for outlook. For instance, some of the companies are already gearing up for drilling operations. Even some of the NOCs (Nigerian indigenous oil companies) are gearing up. So we know what they are planning and we try to plan according to their programmes so that when they are ready we are also ready. So, these are not things that you just stock. NO. You get them ready when something is ready to go.
I did not mean the cost of your service operations. I mean the cost of the rigs you want to buy. How much will they cost?
We cannot categorically state how much we are going to spend. It depends on the size of the contract we are going to get. When we have already got the contract then we can estimate what we are going to spend. But if you don’t have the contract then your investment outlook might be little blurred. We know that the contracts are there, but we need to win them before we invest in their execution.
Whereas exploration is low in Nigeria, operators are active elsewhere in Africa, especially in East and West Africa. Are you following operators beyond the shores of Nigeria and to which areas have you spread your reach?
Definitely, we are spreading our tentacles across the continent. We have been to Gabon, we have been to Angola, and right now we are strongly established in Ivory Coast. We have one of our biggest international subsidiaries in Cote D’Ivoire. In fact, right here in front of you is our General Manager in charge of Cote D’Ivoire. He is from Ivory Coast and he speaks French. So, you can see that we practice local content both in Nigeria and anywhere we go as well. So with that, most of the services we offer in Nigeria we offer them also in Ivory Coast. We are established there. We are not just operating from Nigeria in Ivory Coast. We are an entity in Ivory Coast.
The fall in oil prices hurts, the downtime in Nigeria hurts more. So in what direction do you think the industry should head at this point?
Well, it has affected us the extent it has affected every other person. We had to do some cost reduction initiatives in-house. We painfully had to lay off staff. We also closed offices in some parts of the world. But obviously, the truth is that we have stayed focused, used some of our reserves to re-invest and re-invent ourselves so that when the industry picks up, we are ready to go. We are running a sustainable business and we will continue to strive to be the best in the areas we operate and remain the best in the top range of service provision in the industry. We will and continue to deliver best value to our clients and stakeholders.
Experts think that the future of the Nigerian petroleum industry will depend on PETAN in term of asset optimization technology, cost reduction and prompt project delivery. Given you status in the indigenous service sector, how have you plugged into global industry technology?
You are quite correct. Right now the whole industry is looking at reducing cost across board all over the world. So, one of the things we are doing to reduce cost for our clients is to provide them things that are local to where they operate. A good example is Nigeria. We have toured the world-UK, Aberdeen, Norway, Stavanger, North America-looking for suitably qualified Nigerians to bring home. And they are far cheaper than expatriates; and by so doing we reduce cost for our clients. Also bear in mind that these Nigerians coming from overseas are also importing technology because they have been exposed to global experience. Also, assembling qualified staff from across the world builds a pool of technical diversity. So they come in and bring technology home, and that reduces cost for our clients. We are doing the same thing in Ivory Coast, trying to bring back the nationals in other countries back to Ivory Coast to work in their energy industry. By so doing, we reduce cost.
When expatriates started coming to Nigeria their services became costly because of their rotational flight and immigration. You don’t incur such costs if you hire a Nigerian. Also, most Nigerians are super qualified. Most of the expatriates that we have are just there because they have gained experience over the years. Understand what I mean: not necessarily in terms of educational qualifications but in terms of experience. Now we have Nigerians that we have employed and equipped with experience that can take over from the expatriates in order to reduce cost for our clients. We are also scouring the world for technology that is relevant specific terrains like Ivory Coast. The bottom line is to reduce cost. That is what we are doing! So we tell our clients that our internal systems of job executions are tailored towards reducing cost for them.
There has been this cycle of debt in the industry originating from traditional government debt to its JV operators. It has trickled down to the service sector to worsen high local interest rates. How have you been able to navigate these challenges and still deliver profit?
It has been a very hurtful and difficult development. And right now I can tell you a lot of our clients owe us money. You may have probably heard of a lot of court cases over unpaid debts in Nigeria. Some of the NOCs are also involved partly because of the JV cash call issues and partly because working with Nigerian companies is also a bit difficult. So what we have been doing is to dip into our reserves from time to time. That is not very good but that is what we are doing! And hopefully, as things get better we replenish our reserves. So the danger there is that if you don’t have the reserves, then you run into problems. For instance, in the recruitment part of our business, sometimes we pay the workers for three months even before they pay us. Imagine how much you spend paying people who earn $2000 or $2500 per day, net. When you calculate this for three months it runs into tens of millions of dollars. And then it takes the client three months to pay you. So, if you don’t have the reserves you can’t cope with that. So it is all part of how you manage your business and how you make allowance for reserves for the rainy day.
It appears to be in our nature to think that the outsider has much more to offer than the person inside. But recently I have started seeing changes. People now appear to feel more inclined to partner fellow Nigerian companies. Before, there used to be the issues of trust whether the Nigerian company will be able to do the job or whether there won’t be issue with cash flow. Right now things are changing. People are also realising that internal partnerships are also good for the nation
You said you are acquiring deepwater rigs. And that is big ticket business with high risk and huge returns. How do you balance risks with prospects?
You are right. Deepwater operations are very risky. Your profits could be wiped off by a small mistake. Environmental issues or natural factors can wipe off everything. So what we do there is share our risks. We don’t do those ones alone. We have partners. We have partners who are well established in that end of the business. The land rig we do it all alone, like the one we run for Shell now. But if it involves jack up or deepwater rigs, the risk now escalates, and that calls for partnership with other firms with longstanding experience of how to deal with the terrains. However, our partnership with foreign firms enhances knowledge transfer in the shortest possible period. We run agreements that provide that any expatriate coming with our partners will stay for a maximum of two to three years during which he must train up a Nigerian to understudy and take over from him. So we factor that into the agreement we have with them. That is the only way we can drive down the cost and be able to pay off whatever is left on the deal.
There are accusations that big service providers like you don’t patronize smaller compatriot subcontractors. What is your local content profile in terms of partnering local subcontractors?
For all our operations in Nigeria, we use only Nigerian companies. All!! And most of the companies we use are about the same size as ourselves or slightly smaller than we are. Even the banks we use are Nigerian banks not minding their exorbitant interest rates. Even in Ivory Coast, all our services there we use local companies. So in every tender we submit we list the Nigerian companies that we use. We don’t tell lies about it. We make sure that all our contractors in Nigeria are paid even when the client has not paid us. We respect what is written in the agreement and sometimes it states that the contractor is paid in 30 day of job delivery.
I have observed that most indigenous service providers don’t partner themselves despite all the capacity that is available. So with all the strengths you have flaunted why are smaller companies shopping foreign partners?
That is a good question. I think it is kind of in our nature, but things are changing. It appears to be in our nature to think that the outsider has much more to offer than the person inside. But recently I have started seeing changes. People now appear to feel more inclined to partner fellow Nigerian companies. Before, there used to be the issues of trust whether the Nigerian company will be able to do the job or whether there won’t be issue with cash flow. Right now things are changing. People are also realising that internal partnerships are also good for the nation: to partner one another. When you partner a foreign company it comes here to use our resources to develop its home country and not yours. And the oil will not last forever. We in Hobark partner Nigerian companies. I am the person who complains that most other Nigerian companies don’t partner us. We are based in London as well but most Nigerian companies coming to London don’t seek our partnership, rather they will go and look for British companies. I always tell them that we can also do what they want from those British companies. So we are part of those who complain about that but we do our bit to partner with Nigerian companies. So we support PETAN. Last year, PETAN came to Aberdeen. There were only three companies that supported them. We are one. We also took sponsorship roles in some of the programmes held by PETAN. When Nigerian High Commission in London held an event and they needed Nigerian companies to assist, we supported them.
What policy options do you think that government should adopt to lead the industry out of the current doldrums?
First, let them sort out the JV cash call issues. I think that they have started putting in place things that will revive the industry like what has happened in NNPC: the breakdown of the corporate headquarters into five divisions with different CEO. There are also issues like the local content optimization in the industry. I think the structures are there to implement existing policies properly and not like before. And if that happens in Nigeria, I can assure you that what next Nigerian businessmen need is good governance. Give it to them and let them invest and keep the nation growing! But if good governance is not there, if there is no security for lives and property, it will be difficult to do business there. If we get stable electricity supplies, for instance, our margins will improve because we waste a lot of money in running diesel generators to power businesses. We waste a lot of money hiring extra police escorts. The bad roads are not doing you any good. Quite a lot of things need to be fixed. For now, let’s make sure that the institutions that exist are strong enough to take care of business. Once they do all those things, things will start falling into place. I know a lot of people keep calling for government to fix one particular thing or the other, like the forex. Relax the forex or don’t relax it? Just get it right and it will be good for business!