Nigerian Indies: The Talented Tenth

By the Editorial Board of the Africa Oil+Gas Report

Africa’s growth as an industrial marketplace is going to be determined by its exceptional companies

To go by sheer volume of crude oil output, Aiteo and Eroton should undoubtedly be the leading indigenous Nigerian Independent companies to watch in the immediate term. Their gross daily production of around 90,000 and 60,000 barrels In Oil Mining leases (OMls) 29 and 18 respectively, for most of 2017, are underpinned by the reserves sizes of those assets. On a net basis, these volumes compare favourably with other Western independents focused on African resources, including such aggressive operators as Tullow Oil and growing stars like Kosmos Energy.

But volume and reserves, while important, do not, on their own, determine for us which homegrown Nigerian E&P operator to look out for in the next five years.

Our rough but intelligible ranking of the top 10 progressive Nigerian E&P Independents is loosely inspired by W. E. B. Du Bois’ theory of The Talented Tenth.

The revered African American sociologist, back in 1903, argued for the development of exceptional African Americans through education, that “these Talented Tenth may guide the Mass away from the contamination and the death of the Worst”.
In other words, the best will save the rest

IN CHOOSING THE TALENTED TENTH, we search for those firms who show the willingness and ability to grow; who are keen on operatorship and not content to be mere partners. Those firms whose choice of projects can help catalyse the industrial economy and who exhibit old fashioned aggressiveness that is not contaminated by the rentier instinct. While corporate governance is high on our ranking, we take more than a cursory look at the debt profile. We have a soft spot for companies who are angling to diversify into midstream, even downstream segments, to help tackle the country’s industrial challenges. We are, of course, a sucker for healthy focus on community development.

We however acknowledge that a company’s emphasis on everything but profit will not guarantee its survival.

This list, which we will continue to update and publish yearly, is unlikely to ever include companies who become operators by default.


Going by its crude oil output performance in the 12 months to June 2017, Seplat Petroleum is not the most obvious choice of Number 1 In this rough survey. The company has had to shut in 80% of its oil production in its base assets: Oil Mining Leases (OMLs) 4, 38 and 41, with daily output of 72,00B0PD crashing down to 15,000BOPD as a result of the 16 month shut in of the TransForcados Pipeline System (TTS), the evacuation facility for crude from those three acreages. Seplat had ramped up to over 54,000BOPD in operated production and close to 70,000BOPD in gross output (December 2017 average) after the opening of the TFS. The company has wrestled with avoidable partnership challenges in OML 55 and has faced some headwind in delivering the gas project named ANOH which, some cynics note, is above its pay grade.

Since declaring a $62 MM profit for 2015, Seplat has reported a loss in its last four reports: Full Year 2016 annual report and First and Second and Third Quarters 2017.

As of the third quarter 2017, Seplat had hastened towards the black, but was still in the red, reducing loss from $28Million in first six months of 2017 to $5.6Million by the Ninth Month of the year.
But we see that this dual listed firm (London and Nigeria Stock Exchanges) has clarity about where it is going. By listing on the London Stock Exchange, it has voted heartily for corporate governance. By being on the Nigerian Stock Exchange, it is only one of two Nigerian companies in the E&P space whose shares are available for all.

In spite of the 2016/2017 challenges, Seplat is determined to be the leader in the domestic gas market and be the dominant supplier of gas to Nigeria’s growing gas to power sector. From the roughly 200 million standard cubic feet of gas per day (MMscf/d) train it acquired from Shell& Co in 2011, Seplat has achieved 525MMscf/d nameplate capacity; its gross production had leaped to over 300MMscf/d by November 2017. Whereas the final Investment decision for its part of the ANOH (Assa North Ohaji South) gas project in OML 53, which is a 300MMscf/d project, could not be achieved by end of 2017, the company is hoping it could sort everything out before the end of 2H 2018.

We are inclined to believe it would. For its crude oil sales, Seplat is pursuing two alternative routes, in order to avoid the chokehold created by the shut in of the TFS. One is a barging (shipping) operation, via which the commodity is evacuated into an FPSO. The other is a new pipeline from Amukpe into the Chevron operated Escravos Terminal. Seplat was hoping it would double the volume barged from OMLs 4, 38 and 41, from 15,000BOPD to 30,000BOPD by the end of 1H 2017, if the TFS had not come up by then. But the TFS did come up, even though it continues to be threatened. Seplat has not sat on its base asset alone: It has 40% In Pillar Oil operated Umuseti field, a 40% equity in OML 53, receives equity crude amounting to 22.5% of OML 55 and has Indicated its readiness to purchase more producing acreages if the opportunity comes up.

No. 2 NDPR

Niger Delta Petroleum Resources (NDPR) produces roughly 6,500B0PD, at optimum, from the Ogbele marginal field, a field through which It has transformed itself Into an integrated energy player, providing 35MMscf/d from its gas processing plant to the LNG export project In Bonny and delivering 120,000litres per day of diesel to customers from a crude of topping plant, essentially the only private crude of refinery in the country. In its sights are the Upgrade of the refinery to 11,000BOPD capacity, as well as development of the 25MMBO (estimated 2P) Omerelu field (a heavy crude with API gravity of 200, where operations are expected to start in late 2018). NDPR has 42% (majority) in NDWestern, the entity that holds 45% in OML 34. So our choice of NDPR as No 2 of the Talented Tenth lies greatly in its aptitude for success despite the imposition of bottlenecks by the Nigerian environment.

NDPR has started producing LPG for the local market, from the same facility from which it delivers export gas to NLNG. Thus, from a marginal field, it is the most vertically integrated E&P company in Nigeria.
Unlike most Nigerian home grown E&P firms, NDPR is very active outside its home country and this is not about collecting assets and sitting on them. NDPR is the partner to Nilepet, the South Sudanese state Hydrocarbon Company, on South Sudan’s gas monetization strategy. Both have a joint venture firm named Nile Delta Petroleum. NDPR participated and won hydrocarbon acreage licence In Uganda In 2016. It has produced the Ogbele field for 12 years since 2005, making it one of the three longest running indigenous operators of a field of reasonable size. The partnership deal with the host communities around the Ogbele field Include a clause that allocates 5% of the annual profit to the communities.

No. 3 NDWestern

NDWestem is a consortium of three respected Nigerian E&P companies; NDPR, Waltersmith Petroman and First E&P, as well as the Petrolin Group, controlled by Sam Dossou Aworet, the Beninois businessman. The company’s push to grow the output and value of OML 34 (reserves), in which it bought 45% stake in 2012, has been hobbled by the ineffectiveness of the operator, NPDC, as well as the 16 month long shut In of the Trans Forcados Pipeline System, through which crude from OML 34 is exported.

This asset has not performed anywhere close to its potential since NDWestern bought into it in 2012. Production has remained largely below 20,000BOPD, less than half of “the very least it can do”. For most of those five years, NDWestern’s gas output has remained below 300MMscf/d, even though the capacity of the plant handed over by Shell is way higher than 400MMscf/d. This poor performance is also largely due to NPDC’s incompetence as operator of the plant and the supervisory entity in charge of operationalizing the upside opportunities.

Still, this volume means that NDWestern is a significant player in the domestic gas market. And NDWestem will be fine, we believe. The constituent Nigerian companies in the SPV named NDWestern are some of the most growth-passionate companies. Gas production capacity in OML 34 had increased by 150MMscf/d since January 2017 although, in the two years that NPDC had dragged the project, challenges of offtaking and Liquidity in the Nigerian domgas market have worsened.


Eroton makes the Talented Tenth through the quality of its asset, OML 18 (2P reserves estimate: 576MMBO of crude and condensates and 4.2Tcf of gas) and the combined experience of its constituent founders. An outgrowth of Martwestern Energy, formed by Midwestern, operator of the 19,000BOPD Umusadege field and Mart Resources, the Canadian junior which has now been bought out by the former through the London listed San Leon, Sahara Energy, an active player in the Nigerian energy scene for over 15 years, holds 18% of Eroton.

Oben Flow Station

Seplat Operated Oben Flow Station; The Company Pushes to Dominate the Gas to Power Market

While It Is, not, on its own, a pedigreed E&P player, Sahara brings in the sociopolitical experience, which is very crucial for operating in the country. But it also comes with own challenges; Sahara has allowed some of its own operated E&P assets to lie fallow, some for upwards of 10 years. In the downstream, it has been involved in the failed experiments of the NNPC crude oil for petroleum product swap arrangements. The 2015 audit report of the Nigerian Extractive Industry Transparency Initiative NEITI, implicates the Offshore Processing Arrangement (OPA) between NNPC and the Sahara Group, as the one with the largest financial loss.

The NNPC arrangement with SAHARA Petroleum incurred a loss of $323,129,180.50, around 40% of the $723 Million that the country lost, in that year, to those arrangements. So there, for Sahara Group’s involvement in Eroton. Apart from the 60,000B0PD gross crude oil output, Eroton produces 50MMscf/d of gas (meaning net 27,000B0PD and 22.5MMscf/d to Eroton). The bulk of the gas is supplied to Notore Fertiliser plant. That gas supply to the domestic gas market, helps push EROTON high in our ranking.


Aiteo’s main claim to this list is the sheer size of OML 29 (Estimated 2P reserves: 2.2Billion BOE), of which it holds 45%, purchased from Shell, TOTAL and ENI in 2015. Aiteo has almost tripled production in 15 months of taking over operatorship from Shell, from 35,000BOPD to 90,000BOPD. But it has also had to struggle with debt in the excess of $1.6Billion, procured at a time when crude on prices were close to double the current prices. To go by the information memorandum provided by Shell at the time of sale of the asset, the optimum production by the second year of taking over the asset by Aiteo, ought to be north of 140,000BOPD.

Such volume makes it easier to pay back the money, especially at a price range of $58-65per barrel. Aiteo E&P no doubt has quality management, headed, at least in name, by a former CEO of Shell’s deepwater Exploration and Production Company in the country. The company has a subsidiary to monetise natural gas, as well as a power plant company (run by a former CEO of the country’s electricity regulation agency) which plays in the emerging electricity supply industry. Still there persists the negative aura of its being founded and largely owned by a crude oil and petroleum products dealer who had close ties to the much vilified former minister of Petroleum Diezani Alison-Madueke.

Aiteo’s directors; in executive management or otherwise, are not published on its website. The founder’s name and career history are the only items on the site. This is a sort of hint at Maximum rulership. It does not speak well of corporate governance. Add to that the weight of the debt and its servicing and the wonder is whether Aiteo will navigate the next five years In Its current form.


If this ranking had happened 11 years ago. Conoil might have been the only one on the list. Its selection as No. 1 then would have been undisputed. Conoil is the first real Nigerian operator of a Nigerian hydrocarbon acreage, winning its first license as one of the several local firms granted discretionary awards in 1991, during “The Indigenous Thrust”. At the height of Its powers, Conoll produced over 35,000BOPD between 2005 and 2006 and claims gross hydrocarbon resources of over 1 Billion Barrels of Oil and 7Trillion Cubic Feet of Gas in six acreages including OMLs 59, 103, 136 and 290, as well as OPLs 2007 and 257. Production has plunged to 12,000BOPD. Conoil has largely left these assets to lie fallow for most of the past 11 years, due to poor corporate governance and inadequate optimization of assets.

In the last three years, however, the company has been more aggressive working on the upside potentials of OPL 290, OML 2007 and OML 59. It has made deeper pool discoveries in OML 59 and proved up new oil In OPLs 2007 and OML 290, and sometimes talk about the possibility of reaching 40,000BOPD by 2020, although that seems unlikely. Conoil doesn’t have a technical or managerial succession planning scenario, which is a disadvantage. It will likely be around in the next five years, most likely in its current form, most likely with higher production. The Company’s main risk to being an exceptional performer in the Nigerian environment is its own self.


Waltersmith Petroman is one of the first three marginal field licensees in Nigeria to bring a field to production. It has produced the Ibigwe field since 2008, with increasing understanding of the asset, now delivering slightly over 6,200BOPD. Waltersmith has 8% of NDWestern, which itself has 45% of OML 34. It has an aggressive sense

of growth- It has had three field development phases, involving six successful wells drilled on Ibigwe. In 2016, it won the Turaco acreage in Uganda, after a competitive bid round, but dropped the asset because of “unfavourable terms”. Waltersmith is working on plans to construct a 5,000B0PD crude oil refining plant on Ibigwe. Indeed, of all the companies that have been named as would-be builders of small scale refineries, it is in the lead. And this is mainly because it has direct access to the crude.

There is also a direct access to financing; it has been talking to the Africa Finance Corporation and it hopes to reach financing close for the $50Million project before the end of 2018. Waltersmith has also talked up plans for a 300MW gas fired power plant, which has caught the attention of Abraaj, a Dubai headquartered private equity firm with $10Billion portfolio under management. That project is undergoing preliminary FEED, with financial sanction probably in 2019. Our main concern with Waltersmith is that, unlike Seplat NDPR and Lekoil, we don’t see young personnel in the technical and managerial succession layers who are being primed to lead the company in a decade to come. But this ranking is about the next five years.


Lekoil -With gross production of over 7,000BOPD in one field in which it doesn’t even hold the licence, you may


wonder what the AIM listed, Nigerian founded Lekoil Is doing among the Talented Tenth. ..The truth Is, there is always something exciting happening for this minnow.
Production from the field, Otaklkpo, Is scheduled to ramp up to 10,000BOPD, by mid-2018. The crude is pumped through a 6km, Lekoil constructed pipeline to an FPSO from where the Shell Western Supply and Trading Limited lifts it. By its acquisition of 17% in Oil Prospecting Lease (OPL) 310, investing $120Million in the field operations, Lekoil was instrumental to the discovery of the gas- condensate and oil field named Ogo, located in shallow to deeper waters in the Benin Basin. Its timing from equity acquisition to first oil in the Otakikpo marginal field (30 months) is a record by Nigerian standards.

Although its interest In OPL 310, increased to 40% via the acquisition of the 22.8% from a subsidiary of Afren, is being held up by both partner issues and ministerial consent, Lekoil has shown the courage to prevail in spite of the Nigerian risk. By buying out the owners of OPL 325, in ultra deep water Benin Basin, and progressing seismic interpretation effort on the asset, it has done what Nigerian independents, as a rule, won’t do: invested in wildcat exploration. Its activities in the Benin Basin is a key reason for renewed geoscience interest in the Basin, itself a bespoke member of the West African transform margin.

One key reason we are bullish on Lekoil is its demonstrated effort to train young personnel. You can’t ignore a company that feels optimistic enough to sign a Memorandum of Understanding with GE for appraisal and full field oil development of the Ogo structure, (a $600MM to $1Billion investment) in which GE Oil & Gas (now BHGE), is expected to receive a percentage of Lekoil’s future cash flows from the Ogo Field, as well as the ability to supply its products and provide technical expertise throughout the life of the project.

Even if OPL 310 plans unravel (the licence expires in 2018), we trust that Lekoil will be fine; it has the fire In Its belly, it has significant fund raising skills and acquisitive – expansionary mind-set and is interested in doing the work. It’s a company to watch.


Neconde has 45% equity in OML 42, which produced around 45,000BOPD gross on average in November 2017, a remarkable turnaround from when the company’s barging operations developed a hitch in September 2016, after which production dropped to naught. In terms of keeping an eye on output, NECONDE, a consortium made up of Nestoil, a leading local oilfield construction company and Yinka Folawiyo, holder of the OML 113 (containing the Aje field), has been the one of the most aggressive of the four Nigerian Independents who acquired Shell/TOTAL/ENI’s equity in four acreages in 2012. It was the most vocal in disputing the operatorship of the NPDC, which has served largely in holding back production in these assets at a time of rising oil prices, a situation that has now in retrospect, proved to destroy value, as the loans raised for those acquisitions could no longer be rapidly paid back in the low price era.

NECONDE was the first to resort to barging its crude, once the Pipeline to terminal facility, the TransForcados System, was taken out of action by militants in February 2016. NECONDE doesn’t come across as having downstream plans. It is not looking determined to play in the domestic gas sector, even though it has a pillaged Gas Processing Plant on its property. It does not look spectacularly challenged to help industrialise Nigeria. Like most of the country’s independents who operate producing assets it is struggling to service its debt and will be severely challenged to remain in its current form by 2022.


Midwestern Oil and Gas, holder and operator of the Umusadege field, was a star of the Nigerian marginal field firm ament. Will it continue to be the aggressive field developer it was up until 2015? In 2014, the company boosted its production capacity from 11,000 to 25,000BOPD. The part-government, part- privately owned upstream operator achieved this boost in produced volume through the addition of five wells, completion of water Injection upgrades and construction of the 52 km Umugini pipeline to the TFS, as an alternative to the ENI operated Kwale to Brass pipeline, which had restricted its production. Midwestern was the core investor in Eroton. By November 2017, the company was producing roughly 19,000BOPD.


There is no 11th position in this ranking. First E&P is a special mention. The company does not yet have a drop of oil to its name as an operator. In 2014, First E&P acquired Shell/TOTAL/ENI’s 45 % stake in offshore OMLs 71 and 72 for about $300Milllon and purchased Chevron’s 40% stake in nonproducing, shallow water OMLs 83 and 85, each with an undeveloped discovery, for slightly less than $70Mlllion.

What particularly stands First E&P In good stead is its rigorous structuring of a development funding plan for OMLs 83 and 85, into which Schlumberger keyed. The oil service giant will be investing over $700MM In the form of oilfield services In the field development, which targets 35,000BOPD and 120MMscf/d at peak from both Madu (OML 85) and Anyala (OML 83) fields. Schlumberger will be paid its invested capital as well as an agreed return on investment from the proceeds of the production.

First E&P is expected to be quite active with the drill bit In these acreages, once the Final Investment Decision is taken. On development, OMLs 83 and 85 are scheduled to deliver 120MMsd/d of gas to the Dangote gas pipeline, the East West Offshore Gas Gathering System EWOGGS(See Vol 18, No2 Africa Oil+Gas Report). Its OMLs 71 and 72, in which Dangote Group has the majority stake, are to supply 250MMscf/d to the EWOGGS. With these, First E&P will be playing a big part in Nigeria’s domestic gas market, but these fields have to be developed first.

An earlier version of this article was published in the April/May 2107 issue of the Africa Oil+Gas Report. The 2nd Edition of The Talented Tenth will be published in the July 2018 edition of the same magazine


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