Local oil firms walking a tight rope

Indigenous firms are the worst-hit by myriads of challenges bedeviling the oil and gas industry. ADEOLA YUSUF reports on how many of them are running into bankruptcy

 

 

Aiteo, an indigenous oil firm, made the headlines penultimate week; basking in the euphoria of its new status as the biggest Nigerian- owned oil firm in terms of production, hitherto known by many as the petroleum product trading firm, it announced the production of the largest share of the 313,602 barrels per day output from indigenous companies.

The firm’s management cannot be blamed for flaunting its new status as the oil industry is battling with cash crunch and little or nothing was expected from the local firms who are the worse-hit by the crisis.

Aiteo is not alone, a few other firms put up sterling performances, even though they still ranked far below the 77,000 barrels per day production figure of Aiteo . The sad aspect is that tens of indigenous firms are faced with bankruptcy while their productions are near to nothing.

Investing in Nigeria’s future

On April 1, 2015, the media was awash with news that the ownership of OML 29 had been formally transferred from Shell Petroleum Development Company (SPDC) to Aiteo Group.

This information was dismissed by many industry watchers and stakeholders, considering that the divestment programme of the oil major, Shell Petroleum Development Company (SPDC), had not been without controversies and rumours of litigations.

On the other hand, IOCs, which have indelibly etched their names in gold and local investors who play big globally had not only shown keen interest in the divestment offer, they had submitted seemingly irresistible bids to corner it.

As such, Aiteo Group was not reckoned with by bookmakers. But a document by Aiteo revealed: “But with conviction in its impeccable track record of safe, reliable and environmentally conscious energy development and a clear vision for the future, Aiteo snapped up a 45per cent stake in one of Nigeria’s largest onshore oil blocks, in addition to the Nembe Creek Trunk Line, which marked a turning point in oil and gas business in Nigeria. Thus, Aiteo secured the potential to hold as much as 300 million cubic feet of gas and 2.2 billion barrels of oil.

“From when they first indicated interest in the lease, the owners and managers of Aiteo Group were unmistakable about their commitment and bold ambition to be a major part of the world’s energy solution.

The march towards that global vision was gradual, steady and without any publicity stunts. The leadership, management and staff of Aiteo rolled up their sleeves and went to work in silence.

The result of those quiet efforts came out resoundingly when, a few days ago, Aiteo Eastern Exploration and Production Company Limited (AEEPCo) announced a peak production of 90,000 barrels per day less than one year into the operatorship of the reputedly largest onshore oil bloc OML 29.

Agog with excitement hidden beneath journalistic curiosity, pressmen have lately turned the headquarters of the integrated energy company to a Mecca of some sort, as they besiege its officials to know how Aiteo has been able to break into the league of big players within such a short period.

This is no mean feat when considering that SPDC could barely produce 23,000bpd prior to the divestment.

“Top among Aiteo’s landmark achievements since its foray into the upstream sector is the production of 90,000bpd. In 2016, the company traded petroleum products worth over $11 billion.

Only recently, it announced a further $4 billion medium-term investment aimed at boosting both gas and oil output by, amongst other tactics, bolstering infrastructure asset.”

Aiteo, the document explained, has not only risen to be Nigeria’s largest indigenous oil producers with ownership and operation of petroleum storage facilities in Lagos and Port-Harcourt, including the Abonnema Storage Terminal with total capacity of over 110 million litres, the company also holds the second spot in petroleum products tankage in Nigeria.

It has also constructed a jetty to accommodate growing vessel traffic to the Port Harcourt Terminal, which accommodates up to 30,000 metric tons dead weight. Aiteo’s founder and Vice- Chairman, Benedict Peters, had said: “Aiteo was one of the companies sought after and issued permits to import petrol under the Federal Government’s Refined Products Exchange Agreement.

It was also among the indigenous companies awarded oil lifting contracts, valued at $40 billion in 2012/2013. The company also entered into a Management and Operation Agreement with Duke Oil to operate and manage its Crude and Product Exchange Agreement on behalf of NNPC and Pipelines Product Marketing Company (PPMC) from 2011 till 2014.

“Its trajectory to prominence is steeped in a culture of excellence marked by periods of varied fortune. The imperative to explore growing opportunities in the upstream sector of the petroleum industry birthed the Aiteo Group idea in 2008.”

Upbeat about a future that belongs to Aiteo, Peters has highlighted several existing and developing projects that would grow Aiteo’s asset production to over 150, 000 bpd and 200 million sft3/d. He said: “Our outlook is bright with three producing oil fields and viable crude exports via Bonny terminal.

We also have contingent resources to appraise and prospective ones to explore in the medium-tolong term, including full 3D coverage and 2P NNS reserves at 1.6 billion bbls. Put simply, we have a clear vision for the future with the experience and assets crucial to providing oil and gas consistently on a regional and global scale.”

These statements of assurance could not have come at a more auspicious time than now when the Ministry of Budget and Economic Planning in the Economic Recovery and Growth Plan (ERGP) 2017 -2020 just disclosed that government plans to reduce petroleum product imports by 60 per cent by 2018, as it looks forward to becoming a net exporter by 2020.

According to the report, the Federal Government’s intention with regard to the oil and gas sector “is to increase the production of crude oil and gas while adding value in the downstream petroleum sector.”

Bankruptcy threats

In a bid to boost local participation, the Federal Government encouraged the international oil companies (IOCs) to surrender their marginal fields for assignment to indigenous concession holders. A marginal field is defined as any relatively moderate field that has reserves booked and reported annually to the Department of Petroleum Resources (DPR) and has remained unproductive for a period of 10 years.

The programme has brought about the emergence of a new generation of smaller Nigerian producers, who have increased the share of production from local players to 10 per cent of the total oil output, data from the Nigerian National Petroleum Corporation (NNPC) showed.

Over 100 blocks are in the control of indigenous operators, who were awarded some 50 marginal blocks through discretionary allocations in the 1990s, another 24 through marginal fields bidding round in 2003, and 60 more blocks through conventional bidding rounds in 2005 and 2007.

Dubril Oil Company Limited, which was incorporated in 1987, is described as the first indigenous petroleum producing company in Nigeria. In 1991, the company drilled the first exploration well by a private indigenous company.

Other early entrants include Conoil Producing Limited (formerly Consolidated Oil Limited), founded in August 1984; Oriental Energy Resources (1990); Famfa Oil (1991); Nest Oil Plc (1991); Moni Pulo (1992), Niger Delta Exploration & Production Plc (1992); Amni International Petroleum Development Company (1993) and SAPETRO, which was formed in 1995.

Other indigenous firms are Oando Plc, Frontier Oil Limited, Seven Energy, Seplat Petroleum Development Plc, First Hydrocarbon Nigeria, Emerald Energy Resources, Energia Limited, Midwestern Oil & Gas, Neconde Energy Limited, Network Oil & Gas, Newcross Petroleum Limited, Orient Petroleum Resources and Sahara Group.

Most of these local players have, however, ran into troubled waters financially. Head, Energy Research, Ecobank Capital, Mr. Dolapo Oni, confirmed this by telephone in a chat with New Telegraph.

Most of them are not very liquid right now. He said : “They are having cash flow problems. Servicing their debts is a bit of an issue. A lot of banks are currently restructuring debts. Almost 100 per cent of the debts that are being restructured are owed by indigenous oil and gas companies.”

Chief Executive Officer, Frontier Oil Limited, Mr. Dada Thomas, described the impact of the oil price drop on indigenous firms as “grievous and grave.” He said: “The reason is that we don’t have the economics of scale that the larger national oil companies and international companies have.

Therefore, our unit cost of operation is far higher than theirs and you can understand that if you have a high unit cost of operation and yet your unit price of sale is dropping, you are in trouble.

Survival of the fittest

Current output breakdown showed that Aiteo, Eroton, NPDC, Oriental, Seplat produce 77,000 -90,000 barrels per day, bpd 54,000 bpd, 42,654 bpd, 24, 000bpd, and 21,881bpd respectively.

Newcross, Midwestern, Belemaoil, Amni, Conoil, Niger Delta, Walter Smith and Erin Energy produce 20,000 bpd, 13,000 bpd, 12,000 bpd, 11, 000 bpd, 9, 130 bpd, 7,000 bpd, 5, 837 bpd and 5,000 bpd.

Others – Energia, Moni Pulo, Prime Energy, Platform and Pillar Oil – also produce 4,500 bpd, 3,200 bpd, I,200 bpd, 1, 100 bpd and 1, 100 bpd respectively. Investigations showed that the companies have intensified efforts in developing their assets to produce more in future.

A tall dream

Indigenous companies in Nigeria have, however, concluded plans to increase oil production by 60 per cent at end 2018. This is expected to increase their collective output from the current 313,602 barrels per day (bpd) to 500,000 bpd in 2018.

This will also enable them to increase their contribution to the nation’s daily output from 10 per cent to 20 per cent, leaving 80 per cent to the IOCs that currently produce 90 per cent of Nigeria’s total output.

The Managing Director of Seplat Petroleum Development Company, Mr. Austin Avuru, had predicted that the indigenous companies will also produce about 1.5 billion Cubic Feet of gas daily in 2018.

Top among Aiteo’s landmark achievements since its foray into the upstream sector is the production of 90,000bpd. In 2016, the company traded petroleum products worth over $11 billion. Only recently, it announced a further $4 billion medium-term investment aimed at boosting both gas and oil output.

Conclusion

Scores of indigenous firms, which have gone under could increase their market share by diligently following the footsteps of the market leaders.

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