Degeconek Oil and Gas Limited Managing Director/Chief Executive Officer Mr. Abiodun Adesanya is the immediate past president of the Nigerian Association of Petroleum Explorationists (NAPE). In this interview with EMEKA UGWUANYI, he proffers a solution to revamping the refineries, the need for exploration in the frontier basins and how to optimise oil reserves and economy through the right policies and prudent financial management.
What should be done to the refineries to make them work?
It is traditionally believed that every venture government has a hand in does not work well. So, there is a need for either partial or total divestment and allow the business to go to the private sector. That, in a nutshell, is the way forward. Every other attempt by the government to monopolise and control 100 per cent any venture has not worked and will never work.
A lot has been spent on refinery maintenance and turnaround maintenance. We still have those problems and we will continue to have them as long as that business is in the hands of government. Government should divest strategically, retaining about 20 per cent and let 80 per cent or more in the hands of the private sector. If you and I own a refinery and operate it, clearly we will watch out for our interest and run it as a business just as we have seen in the telecoms business and what we will see in the power sector when they eventually sort out their issues.
The Federal Government has set 2019 to stop importation of refined petroleum products. Do you think that is a step to achieving self-sufficiency in fuel requirement?
The reality is that our refineries are old and they haven’t been diligently maintained over the years due to corruption, among others. To meet that target is an uphill task in the light of what I’m seeing except if there is a magic wand somewhere, I don’t see us meeting that objective. We can move closer to realising that objective, but entirely achieving it is a tough one.
The government is also suggesting co-location of new refineries with the existing ones. What is your take on this?
They will benefit from similar infrastructure. They will benefit from roads, water, pipeline that supplies crude to the existing refineries’ facilities in the first instance. So, that will obviously have positive impact on the overall cost of having those refineries. So, for a cheaper cost you can actually have the value you try to create.
What is the future of Nigeria’s oil and gas reserves with the dwindling exploration activities?
The future of Nigeria’s oil and gas reserves is still bright. People think Nigerian basin is mature, but as a geoscientist and from NAPE perspective, I can tell you Nigeria still has the capacity. There are still enough of plays out there to be able to double what we have now. It is just making sure we have the right policies in place. We have to recognise that oil companies are into business. So, in any business you are, if you are not making money, I don’t know how you can continue in it. Also, because the world is dynamic, and the economy is dynamic, the government needs to respond with changes in policies. I can tell you in the times past when the price of oil was $10, the government responded by putting a policy in place to encourage exploration and there were some incentives.
For example, if you go and explore and drill an exploration well, there is an incentive for it. There was also an incentive such as reserves addition bonus. But all those policies have relapsed. The major challenge that we have apart from the fact that oil price has come down, is that we have a lot of competitors within the African environment. A lot of the West African countries that had no oil in the past have now discovered oil. There is virtually no country in the sub-region that has not found oil and gas.
The question here is what makes same oil firms here to go there to explore and not explore here? It is because business people and the fiscal policies there are better and money will always chase investment where it will make profit. So, the right policies are there. The Petroleum Industry Bill (PIB) has been before the National Assembly for about 17 years without passage. With the right policies and laws we can double the reserves we currently have as a country because there is no oil and gas technology in any part of the world that we don’t have in Nigeria. There is no frontier technology in the world that we don’t have in Nigeria. We have not even taken the value chain of oil and gas. We only think of oil and gas, most of the time, in terms of white products – petrol, diesel, kerosene, forgetting the petrochemical.
The oil and gas industry is heavily capital intensive and has long gestation period. Sometimes you drill some dry wells and the cost of some of those wells, the cheapest one, are in the neighbourhood of between $20 million and $40 million. How many indigenous firms will be able to drill a dry well of $100 million twice and will be able to survive? So, to be able to do that, they have to spread the risk and that is why partners have to come in. Even in the deepwater acreages, the international oil companies (IOCs) partner, they don’t do it alone.
Government’s slogan now is ‘diversification’ from oil and gas. Where do we diversify to and where is the money for this coming from?
We have mentioned agriculture, solid minerals, but primarily because we are geologists, some of our professional colleagues are working in that sector also, so it will be easier to relate. Solid minerals, agriculture, ICT, tourism, among others, the list can be extended where we can diversify to? In 2016, I said we need to come out of the recession with lessons learnt. We need to avoid a situation where we make the same mistakes all over again and we go the cycle all over again. With prudency in financial management, with areas of wastages blocked, with men and women of knowledge and capacity put at the helm of affairs and with the right policy thrust by the government, whatever the volume of that money is, will be carefully managed and steer us into these other diversified areas. And we should be able to again see an expansion of those areas. Nigeria is never short of money, it is just the problem of management of that resource. If we manage it very well, we will have money to build infrastructure such as railways and we can progressively start. The issue of Apapa Port gridlock will be addressed. We can carefully tilt our policies and programmes in such a way that the areas that are essential for the growth of the economy, we put money there and we see the result.
Do you think production from frontier basins will match that of the Niger Delta basin with time?
It is not a competition. It is more of a diversification of the sources of the nation’s hydrocarbon. What is being done or advocated to be done, is for example, you need gas in Sokoto, Kano, Maiduguri, and if the only way to get that gas to such places is to run pipeline from the Niger Delta all the way to those places, that will be an expensive venture.
That is not the reason behind exploration in those places. Exploration in those places is a matter of necessity. God gives you a resource, you don’t know it’s there, why not find out if it’s there or not. You are not hundred per cent sure it is there, but you are making effort to find it because it is there and you need to develop it for your development. If we find a big enough gas field in Bauchi-Gombe area, with that gas, you can build an independent power plant (IPP) on that spot and you can enter the national grid from that spot. You don’t need any partner, and the electricity is shared around the country. You can make that place an industrial hub for industries that need that gas for whatever their businesses are.
So, it is a convenient, easier and sensible way, but you must do the hard work first. You must go and find it, if it’s there you must find out. The science says it is logical to look in that direction, so you want to basically make sure you exploit that opportunity to the fullest. That’s all we are saying. So, it’s not a competition with Niger Delta. We may find something bigger or smaller than what we have in the Niger Delta. I cannot say that today because it is impossible to say that.
So, is there any hope of finding oil in the frontier basins or has there been any discovery already?
I’m not God, but I will try as much as possible. The reality is that the results from these basins are encouraging. I would isolate the 23 wells that were previously drilled in the Chad Basin. I’m looking at the three wells that were drilled in the Benue/Gombe/Bauchi area. One of them actually intercepted gas and that gas is what they now want to appraise. So, in the next three months Frontier exploration Service (FES), an arm of the Nigerian National Petroleum Corporation (NNPC) will be scudding and drilling that appraisal well. They will be doing that drilling and when the results come we will see, but most likely there will be an announcement of gas discovery in that Gombe/Bauchi axis. That’s our expectation.
The demand for renewable energy is increasing globally. Can this be a threat to demand for fossil fuel in the future?
To the extent that it is fuel, yes. Currently, I think about 64 per cent of global energy consumption comes from fossil fuels and the idea is that by 2025, that percentage would have dropped below 50 per cent. But oil and gas is still useful in other areas for petrochemical development – the shirt, button, jacket, plastics and fender of cars, among others, are products of oil and gas, products from petrochemical industry. We haven’t even scratched the ground on that basis at all in this our environment.
So, if oil and gas is not giving us petrol, diesel, kerosene and Jet A1 for aircraft, among others, it will be giving us opportunity to set up plastic and fertiliser industries. Gas can be used for fertiliser. It is a major component of fertiliser. So, the agriculture and other things we want to do as a country, we will be able to do it better if we harness the hydrocarbon resource. All we are doing is trying to diversify and make sure we exploit the resource. So, it is something that will be around with us for a while. The other point that is also very important to notice is at what cost will all the other renewable energy sources be? How much money do you need to generate what? As it is now, gas is still the cheapest way to generate energy, fuel or power. Hydro, solar, nuclear and all the other renewable energy sources are there.
In terms of today, how long or far does Nigeria want to make that extra dollar investment? We have oil and gas here, even if the whole world decides that they are burning hydrocarbon again, if we have a need, we use it ourselves. The whole idea is to use these resources for our development regardless of what is happening around the world. Even with what is happening around the world, it is quite expensive to attain right now.
Nigeria is said to have one of the world’s highest production cost per barrel of oil. How can the nation cut this cost to maximise returns?
I wouldon’t agree with this position. To be honest with you, I will say that cost per barrel is a function of cost of services. It is a function of wastages in the system (corruption, among others). But there is the actual cost per barrel. We don’t have any business having a high cost of per barrel given the matured and long history of exploration and production that we have had in Nigeria. If we move to new areas and try to develop them, that will be understandable. But currently, there is a lot of amortised infrastructure that have been built a long time ago and they have paid for themselves already and are just being utilised.
But if you are going to a new area, for example, Aje field production, they need a lot of new infrastructure such as floating production, storage and offloading vessel (FPSO), among others. So, we have gone past that point. Our cost per barrel has no business being high because we have been in recession and the industry has been challenged by oil price, service cost has also come down.
Now there is an element that has nothing to do with oil and gas on the technical side that is also exacerbating the cost per barrel. This include the non-technical cost, cost of joint taskforce (JTF), navy patrol vessel, cost of providing security and community issues, among others. Cost of repairing in a cyclical way the damaged infrastructure because all those costs are eventually shared and passed on to the cost per barrel. So, there is a technical cost that we know – cost of drilling, logging a well and seismic, among others. There is cost of naval patrol vessel, gun-boat rental, repairing Trans Forcados multiple times, among others, which can easily be avoided. By the time you add these on to the technical cost, you have this bogus cost per barrel. So, if we can decompose, try and address those issues and bring them down, I think we will be alright.
Nigerian graduates are said to be lacking the capacity to meet oil and gas industry expectations. What is NAPE doing to address this?
We have the University Assistance Programme (UAP), which has a chairman and the chairman is on our executive council. The UAP started over 15 years ago. It was primarily set up to increase the industry/academia relationship both on the lecturer and student sides. We have the internship programmes in the universities. They started when the UAP started. When a student gets to year three going to year four, mandatorily, he or she will go and spend six months in the industry.
What has been the percentage success, how many students are available and how many openings are available?
The openings available don’t match the number of students. So, some get left out. What we have instituted this year is to take the internship to the schools. How do we do that? We take all the 26 affiliated universities to NAPE. We group them regionally into six geo-political zones and we have a centre in each zone and we attract five best students from six schools, that is 30 students in all, and we run them through “a crash intense internship programme” over a weekend. They start on a Friday and end on Sunday evening. It is something that we see as a sacrifice because that way, people who ordinarily wouldn’t have had the opportunity of getting to hear anything about the industry will have that opportunity.
They will know about exploration and production, among others. It is a crash and the criteria for selection have to include – having a very good class recommended by your Head of Department (HoD). There will still be the normal internship, but we are offering this one and each person from those five schools gets back to school and try and repeat the presentations they have learnt. There is a competition each of them will present back.
It is quite intense, you work 8am till 8pm for those three days. We accommodate them, give them food and one university will host everybody and NAPE supports them with subvention. We put money on it. We have done one in Nnamdi Azikiwe University, Awka, Federal University of Technology, Owerri, University of Port Harcourt, University of Nigeria, Nsukka, We had about six schools in that zone and we brought them all to Awka successfully. We are doing the next one in Ilorin, University of Ibadan, Obafemi Awolowo University (OAU) Ife, University of Ilorin, among others, will come together again.
Every quarter we will do that until we go round the geopolitical zones, and we keep on repeating it again and again. That way we will be able to get a greater number of people to benefit from the programme. Sometimes, having the opportunity and hearing about the oil industry is all you need to figure out and know exactly where to pitch your tent. That is one critical area that we assist in addition to all that the UAP has been doing.
We have been sponsoring lecturers to conferences, we have had leadership programmes and trained the trainers. We take the lecturers and train them too in order for them to be up-to-date and be familiar with the latest in the industry for them to pass that knowledge to their students. We give them scholarships, sponsor them to NAPE conference and we have mini-conference for university students every two years purely for educational institutions that offer geosciences.
Degeconek Oil and Gas Limited is an upstream service company. W hat value does it add to the industry?
Apart from our business, which is providing services in the areas of geosciences and reservoir engineering, we have also hired people. To be modest, we have hired a greater number of people than we actually need at any point in time. A number of them have left us as well and they are strategically in various companies all around. So, we have brought opportunities to those who ordinarily may not have had one. We believe we have contributed and are still contributing to the industry.
What is your advice to upcoming geologists, petrochemical engineers and other geosciences graduates?
Basically, they need to be thirsty for knowledge. So, they have to go to where knowledge is being dispensed. They have to be very good in their lectures in class and make sure they come out with good grades. They have to, as much as possible, position themselves by attending conferences and technical seminars where their knowledge can be enriched; and they need to be dynamic and move around. Of course, it is not easy because they need money to do all these, but doing well in their lectures provides an opportunity for scholarship, among other benefits. But over and above that, they must be ready, because it requires a lot of hard work to make it in anything. They must be ready to walk the work as opposed to looking for shortcuts. They must not be distracted by short-time gains and not be lured into illegal things that people do to make money. They must work hard and know that with hard work and a bit of luck and prayer, which we cannot rule out, they will make it.
