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Ernest Azudialu is running one of the Largest, Home Grown  Engineering Services Firm in the Nigerian Oil Industry. Fred Akanni Went To Find Out.

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For someone who manages a $200Million construction contract in the tense Niger Delta region in Nigeria, Ernest Azudialu has come a long way paddling upstream.
He arrived at the production engineering segment of the petroleum industry by way of the filling station.
“My initial interest was in the blending petroleum products”, he says airily, in the boardroom of the offices of his Nestoil Group, located a whistling distance from one of the several beaches fronting the south Atlantic beach, in Lagos.
Azudialu found out, within the first year, that he couldn’t create a unique brand in that market. “I couldn’t compete with the Texacos, the Mobils,  the APs.
This was in 1993, at least seven long years before some of the big petroleum marketing companies -National (formerly Shell), AP (formerly BP) and Unipetro were sold to Nigerian investors.
As at then, the upstream environment was even farther off the reach of Nigerian companies. But the pull of the upstream was irresistible. He was following the money.  “We found there’s this chunk of money that is being pumped into CAPEX  through Joint Venture operations”.
The Nigerian government, through the NNPC, runs exploration and production projects in the country largely through joint venture relationships with six multinationals. Some $4billion a year, on average, has been spent on joint venture projects between 1995 and 2008. “We found that Nigerians were not in on this”, Azudialu says lightly, as if the money was part of some sweepstakes. “We decided that this was a niche”.
That was the driver that pushed this accounting graduate into an engineering contracting. Nestoil was structured into an engineering service firm, providing, as he put it “engineering assistance” in the production of crude oil. “By the time we tried for three years “, meaning bidding for projects, “they gave us an opportunity”. This was in 1998.
I cut in and asked him which of the companies gave him “the first try”.
His answer was predictable: Shell.
“Nestoil is 101% owned by Nigerians”, he says. “We are involved in Fabrication, Pipeline laying, separators- the initial process of separation of crude oil from water and sand- and overall Engineering,  Procurement and Construction business”
Nestoil’s first job was a Shell treatment plant in Warri. “We did it. That was about 1996. We bid alongside five other companies, all of them foreign.
“We have executed a range of other, increasingly larger projects ever since, such that today we are one of two companies constructing the 97kilometre Nembe-Cawthorne Channel, a pipeline that is 24 inches in diameter. That project costs half- a- billion dollars. We are constructing 47 km of the line, for $200Million, while Saipem is constructing 50km. The project is a crude oil export line through which Shell will evacuate crude into an export terminal. The project is about 40% complete”.
The pipeline runs from ‘Nembe 3’ flowstation to San Bartholomew manifold, and involves the installation of a new pipeline of about 47km, consisting of a 12” diameter segment (about 3.5km) and a 24” diameter segment (about 44km) traversing five  community clusters consisting of about 100 communities in both Bayelsa and Rivers States in the Niger Delta region.
The installation also includes six major river crossings (the widest is about 1.1km), 44 other river and creek crossings of various sizes requiring extensive dredging activities as well as the fabrication and site installation of one main tie-in manifold, six block valve platforms, four  pig traps and associated piping. The new line will run parallel to an existing pipeline of same configuration, within the same (expanded) pipeline Right of Way (ROW). Upon commissioning of the new line, the existing line will be decommissioned.
In the popular imagination, the labyrinthine creeks of the Niger Delta are host to gun bearing militants who frequently attack oil companies working  in their area.  Big, international contractors have been known to walk out of the Niger Delta basin on account of frequent attacks. But this Nigerian businessman says he has no problem. “We don’t have any problem with militants. We are not expatriates. We don’t have installations. But they delay our schedules. We pull back when we know that militants are about to operate in a certain area, or when the JTF (government security forces) is engaging militants in battle”.
Those “delays in our schedules” have had a large impact on the delivery of the Nembe-Cawthorne Channel project.
“We should have been completing that pipeline by the middle of 2009. Now the contract is not likely to be finalized before the end of 2010. It impacts on the cost of doing the job. But it doesn’t affect us. Those costs that have to do with the ETS are transferred to the majors to pay. They place us on what is called standby and pay us 75% of what we incur as daily expenses.
The contract to Nestoil is one of Shell’s big examples of its commitment to the local content drive in Nigeria.
At a workshop on local content in the course of the 2008 edition of the annual conference of the Nigerian council of the Society of Petroleum Engineers, Shell management displayed the contract, with the $200Million writ large, as evidence that the Anglo Dutch major was a leading supporter of the government’s local content initiative.
A Two hundred million dollar contract to a wholly owned Nigerian company is huge by the standards of the sums of the contracts that reach Nigerian companies.
“We are the only Nigerian company that operates at the level we do. Our competitors are Sundretta of India, Wilbros of America(which has now been bought over by Nigerian investors) and Daewoo of Korea”.
Nestoil  has some specialized subsidiaries, including Hammerskop-which is a Civil projects subsidiary, B&G Dredger, a dredging company and Energyworks for offshore projects. The 200 milion dollar pipeline work is being done by Nestoil, the holding company itself.
Azudialu boasts that Nestoil owns one of the best construction facilities in Nigeria. “Julius Berger (the country’s largest construction company) decided to leave fabrication and pipelaying.  Nestoil acquired their assets”.
 The Nigerian content policy was introduced about three years ago, close to 10 years after Nestoil had got its feet in the door. The definition emphasizes the value added in Nigeria, by use of manpower and material by “systematic job creation and investment in local facilities and stimulation of local capabilities”.
It would seem obvious that the local content initiative works in favour of businessmen like Azudialu.
But he has his misgivings: “The policy has not achieved, in its entirety, what the promoters hoped it would, even though there has been some improvement in the initial programme”. He cites, as a key reason behind the poor implementation of the policy, the “unwillingness” of multinational companies to adhere strictly to the guidelines. “Most IOCs would rather find a way of keeping Nigerians away” from implementation of projects that could readily improve the Nigerian capacity in that sector. Again, “the prevailing business environment has not allowed indigenous companies to build the kind of capacity that could aid them in taking advantage of domiciliation of projects”. Azudialu also sees the “collusion of briefcase contractors-who will go to any length to try to indigenize foreign companies and make them look local. This deprives the real local companies the opportunity to participate fully”.
Then he sighs, “there is the Nigerian business attitude: the people who are enforcing those rules don’t go the whole hog to implement them.
“The oil majors claim that Nigerian companies aren’t fully ready to take up the local content challenge. I say that there’s no way you will be asking something from a man that he doesn’t have. You had not given them the opportunity ab initio. These International Oil Companies (IOCs) simply have a deliberate way to keep the Nigerians away. You can’t turn around and say that Nigerians don’t have capacity when you know you have not supported them. What is capacity? It is building the technical know how, having the equipment..
“The fact that a Nigerian is on the board of a company doesn’t mean that that is a Nigerian company.
“There is a new law that says that when you bid you go through the prequalification stage, the Technical qualification stage. The third stage is technical facility inspection. This is to screen out suitcase people”.
I ask him what he thinks of the Asian entry into the Nigerian oil and gas contracting scene, especially at the time government is trying to encourage the local companies. His reply is instructive:
“The Europeans and the Americans were the ones doing the projects with large sums of money. The Asians came and undercut them. Projects that were being executed for $12 million, the Koreans were ready to do it for $8million. The Europeans, instead of being upset, brought them into partnership. When the Nigerians came in, they started undercutting both of them; they were prepared to do such projects for $3million. Now, they have realized they have to bring the Nigerians into the table”.
Azudialu emphasizes focus on building capacity, by Nigerian companies. He says that Nestoil has been devoted to doing that over the years.
The company had a huge coming out party recently, hosting the Nigerian Vice President to its corporate headquarters in Port Harcourt. The occasion was to commission “one of the biggest dredgers in Nigeria. Very large equipment.  That equipment is meant to dredge big rivers-the waterways we go through when we are laying our pipelines or doing other projects. It’s essentially meant to facilitate our work”.
So how is Nestoil funded?
“We get funding by syndicating loans, etc. After the consolidation (which forced Nigerian banks to have a minimum of $190million shareholders’ funds), banks became bigger, stronger, but they are still not strong enough”. We want to go public so we can raise funds from the capital market.
Nestoil’s website says that the company is prepared to provide technical assistance to Nigerian companies. I ask him what it meant. “There are Nigerian companies-they do jobs of $10 million, $12 million. When you want to build big jobs, you need equipment. We help out with our equipment and specialized services”.
Azudialu says that one of the things that affect Nigerian companies most is funding. “When a company tells you they want to do jobs of 10 billion naira or 20 billion naira(between 170 and 340 million dollars), Nigerian banks can’t do that. This is compounded by the fact that some of the companies delay payment and stifle Nigerian companies out of the business. Funding remains a very vital part”.
Nestoil is not prepared to go back to where it started; downstream.  Azudialu is particularly averse to the refinery business. “What I have seen in that sector is that there are no Nigerian businessmen adequately prepared for it. It takes a lot out of you to do business in Nigeria. There must be some level of ruggedness”.
He is sure that the country’s tough business terrain is cut out for the likes of him. Nestoil evolved from a family business run by Azudialu’s parents. “They were businessmen. I learned from them”. I used to follow my father to the warehouse. I grew up in the business environment. He has taken it beyond the merchandise it was and grown it into a key participant in a sector that delivers the main revenue for his country.  So what’s the future?
“It’s time to go public” Azudialu says. He declines to provide how much the company is worth, but  explains that “there’s no way you can run a company of this size in Nigeria without going public. By the time you’re servicing someone in Nigeria he wants you to service him in Angola-You become international.  We are listing on the Nigerian Stock Exchange. It would be the first engineering services company in the oil industry to be so listed. We are looking at 2009; “the look of the market in 2008”, when share prices hit rock bottom, “was so bad”.