Dr. ABC Orjiakor sits at the helm of many fast growing corporate organizations including Seplat Petroleum Development Company Limited where he is Chairman. He has featured prominently in several strategic business sessions at local and international conferences. He was a panelist at the recent HIS CERA WEEK 2016 which brought together leaders from the global energy community to Houston, USA, for dialogue and insight into the future of energy following the current slump in oil price. He contends that Africa still holds strong attraction for global investment funds despite her growth challenges. Excerpts.
What business plans drive Seplat’s growth?
Seplat is an indigenous oil and gas company. With production of 130kboepd, this company is the biggest indigenous oil company in Nigeria. Seplat was formed in 2009, with a very clear vision of what I call three plans plus one. One is organic growth from the assets we have acquired. In the last five years we have grown production fivefold and that meant over this period we have created a very good balance sheet of about $3.0 billion. We will continue to invest heavily in gas. So, gas development is our second plan for growth.
The third plan for growth is accretive acquisition. We’ve pioneered the acquisition of assets divested by multinational oil companies and recently have also added to the acreage, concluded a transaction, acquired a new asset. We just took over a very prolific field from Chevron. Other things we do, and that’s why I said plus one, is that for the future we are focusing very strongly on gas as well as corporate merger and acquisition to encourage diversity in geography and competences. These have actually been driven by quite a number of factors: every success factor we will like to categorize into different segment. First is very strong corporate governance and best practices in the company. The second is our people, very highly skilled professionals who are delivering efficiently and effectively in the oil and gas sector in the country. The third element, of course, is our host community engagement. We’ve developed what we call Seplat model of community engagement. The key elements of this are really to empower our local communities and create real partnerships, develop friendship and make way for prosperity in this environment, and, in the process, increase the confidence of the people in us.
Going forward we will be focusing very strongly on gas. In gas we have made tremendous progress. At inception, gas price in Nigeria was less than 50 cents per million standard cubic feet (50c/mscf), and with the gas revolution in Nigeria which has three key components -gas to power, gas to industry and gas to agriculture- government took a bold step to review the price of gas in the domestic market. So in Seplat we took this opportunity and doubled our gas production within this period. Today, Seplat is producing 300 million standard cubic feet per day (300mmscf/d) which represents about 40 percent of gas requirement to drive the power sector in Nigeria.
Going forward, because of the very wide gap particularly in the power infrastructure in Nigeria, we see a huge potential for growth and huge potential for investment. And because our strategy, long term vision for growth, is very optimistic but achievable, in 2014 we launched a transformation milestone by dually listing our securities in the Nigerian and London stock exchanges. This was the biggest initial public offer (IPO) in the oil/gas industry in Sub-Sahara Africa, oversubscribed, and we raised over $520 million basically to drive our growth in acquisition and gas development. And this basically makes our company a global brand and that again brings to focus our very sound corporate governance, good track record and management of the people.
Of course operating in Nigeria means that you will have to face quite a lot of things. With the declining oil price today quite a lot of challenges exist but the message today is that regardless of these challenges, the opportunities to invest in Nigeria, the opportunities to operate in Nigeria remains tremendous, especially when you look at the areas of infrastructural gaps as well as the areas where the country is committed to diversification of the economy.
Recently there was a very successful election in Nigeria, we had power move from a ruling party peacefully to an opposition party, a very strong and eloquent statement that the government is seriously doing business. The current administration is emphasizing on security, governance and transparency and this encourages investments. For a company like ours, we take advantage of this to continue to grow the company. Looking at the overall continent, I think the statement to make is that the African continent is indeed a very solid destination for investment. When we speak of the continent, we speak of 54 countries, not just one country. And recently quite a lot of exciting things have happened all the way from West Africa, from Mauritania all the way to Angola. Apart from Angola and Nigeria that have been driving the process, we are beginning to see good areas; the transform margin of West Africa is very promising. We’ve seen things in Senegal, Sierra Leone, Liberia, Cote de voire and Ghana.
If you go all the way to East Africa, we are seeing quite exciting deep water discoveries in Mozambique, Tanzania, Kenya all the way to Southern Sudan. What that speaks to is the fact that the potential for oil and gas in Africa is huge, but I think the greatest driver for growth and investment in Africa remains gas development because by the time you look at the gap in infrastructure and power in the entire continent, you cannot but stress the fact that gas development is life blood of our continent.
Do you think Africa still holds strong allure for global investments?
I think the real strong message is to let people understand that the continent is made up of 54 countries; about 10 of these represent some of the fastest growing economies in the world. Things have changed! It used to be the case that Africa was a hellish continent but today Africa has demonstrated the ability to compete in the comity of nations and I think the message here to put across is that there is improvement in governance in Africa. Governments have shown good democracy, good rule of law and even the corporate entities as typified by what I spoke about in Seplat are also beginning to govern their companies in a manner that investment flow should not be a problem.
Now why do I say that most of the things in Africa is about perception, if you listen to news what you see is all the people who get killed. In Nigeria for example the picture is painted about Boko Haram, not too many people realize that Boko Haram is just affecting a small part of the country, and with the new administration we have seen increased squeezing of the Boko Haram. And security has even improved in the country. I like to say this, when you look at all of the things happening with Boko haram in Nigeria, I feel safer in Nigeria than when I am in the US because of all the shootings. So from perception, quite a lot of things can go wrong.
Another thing that is important to drive home is that in Nigeria, for example, we have population of over 180 million people, very young and vibrant workforce, and strong entrepreneurial spirit. These are not the things that many of the investors have come to realize and I believe that most of them who have indeed tried to find what the reality is on ground will agree with me that investment destination remains Nigeria and Africa, returns on investments are very encouraging.
From industry end, what is your perception of the changes at NNPC?
I think what has happened in Nigeria over the last couple of years, the uncertainties around the PIB, did bring quite a number of uncertainties in investments. What has then happened with the new administration, NNPC and the government, is that that PIB has now been decoupled and we are seeing some efficiencies being introduced into the NNPC structure, we are seeing that this bill has not been passed but now there is a renewed commitment to get it done. What we understand is that this bill has now been decoupled into two main components; the regulatory component that will see the emergence of the National Petroleum Asset Management company that will ensure regulatory efficiency and policy consistency in the industry; the second one is the National oil company that will basically run as a private entity that is profitable and can compete with other companies.
So, with the issues of policy consistency and efficiency, what we see in the industry is more investments, we are going to be seeing more assets being available for acquisition for investments. One of the advantages Nigeria has especially in the Niger delta is that quite a number of fields we have are brown fields and another thing that is driving it is the rationalization of portfolios by the international oil companies. That is creating the emergence of a very large group of independents in Nigeria who are taking advantage of working these fields and this by itself brings about some investments in the space.
Another point of course is that we are beginning to see more emphasis on transparency and good governance and that by itself encourages business flow. One other thing this administration has done in Nigeria is continue to emphasize the gas transformation agenda and if you look at what is happening in Nigeria today, there is no nowhere else to go, the population is very large so they need to improve, so when they speak to gas and to agriculture, it’s a major way to diversify the economy. Gas to industry is a major way to diversify the economy. Gas to manufacturing does same. All of these will create prospects in demand and will drive investments going forward.
How are you coping with the commerciality of the acquired assets following the oil price slump?
From our perspective actually, success is a function of growth and value creation. Growth from our case is to ensure that we develop the company in such a manner that there is real good dividend from our investments. So what we have seen over the period is to grow our margin and we’ve remained profitable year on year. We are in very strong growth mode but we have continued to pay dividend from inception and I think our investors can attest to this.
In terms of value creation our community engagement has paid real handsome dividend to the people. Now looking at the oil environment, the first statement to make is that the very low oil price is not going to be there forever. As a company we have put quite a number of things in perspective because we are taking a very long term view of strategic growth. We are focusing very strongly on cutting cost. Our field production operating expenditure is below industry average. We are at $7/barrel. Going forward we are even looking to reduce this further.
In the meantime, we are bringing increased revenue from our gas commercialization. Also, one of the things we have done also very strongly in Nigeria is that we have remained very strong, as we are not cutting labour, because indeed one of our commitments is to create jobs in the Nigerian Oil and Gas space.
Therefore, what we have done is to increase activities that bring more revenue. And of course looking in the long term, if you see what is happening in all over the world in terms of oil price where we are today is a combination of things. Apart from the supply demand fundamentals which we believe is driven mainly by very high inventory, if you also step back and see the rate of decline, the shale production has declined rapidly. The international companies are cutting massively investments. What this means is that there will definitely be a shortfall in supply and there is going to be growth in demand in the medium to long term. The strong message to give is that Africa should become the new frontier for this growth in demand. So all of these put together shows that the industry has a very strong prospect going forward and as a company we see huge opportunities. Going forward, we will continue to drive gas development to ensure diversity. And competence is the key way to continue to grow.
What business advantage do infrastructure gaps in Nigeria offer investors?
I think the way to address it is to focus on our company. When I started speaking I talked about the gas revolution in Nigeria and it is important to take a very strong note of this. What this did was to increase the gas price in the domestic market; and the privatization of the power and electricity companies, meant that there was increase in demand, better pricing. Companies like ours then took this opportunity. And like I said before, by the end of this year we will be seeing almost a doubling of our processing capacity to as high as 525MMscf/d of gas. That is huge! And, of course, the gap that is required for the infrastructure means that there is a lot of investments coming into that; and of course going forward we are looking very strongly that the Nigerian government, particularly now that the oil price is low, will take on gas as an enabler for economic diversification. This will be driven mainly by Gas to Power; Gas to industry; Gas to Agriculture, that is the way to go.
How would you measure success?
Profitability year on year. We make profit and distribute every year. Strong balance sheet- $3 billion today and growing; real impact in our host communities is also a strong measure of our success.