The final of four instalments of a wide ranging interview with Gbite Falade, Chief Executive Officer of Niger Delta Exploration & Production (NDEP) , in which he fields questions from Africa Oil+Gas Report about his company’s medium term strategy, deliverables and the energy transition. NDEP is the most integrated Nigerian homegrown independent, with crude oil production from the Ogbele field since 2005, a 100MMscf/d gas processing plant installed since 2012 and a three train 11,000BPSD refinery which took off as a 1,000BSPD topping plant in 2011. It holds a 42% interest in NDWestern, a special purpose vehicle for acquiring Shell’s divested assets and operates the Omerelu marginal field and the Oil Prospecting Lease (OPL) 227.
Of the three parts of the chain, upstream, midstream and downstream, which of them is your core?
My broad exposure prior to coming here gives me a very open mindset but I am fixated on where value can be created the most. Interestingly, none of the three parts that we are into is a replacement for any of the other two.
We don’t see any one of them as a replacement for the other or as a competition but we see them as a relay where there is a hands off from one to the other. Overall, the bigger picture is the domestication of consumption here in the country and within the sub region and there is also superior sustainable value creation for our shareholders that is in a way that shields us significantly from the vagaries of international dynamics of buying your crude oil or buying your gas but this puts us in a space where we can finally take the final product to the people that need it.
If you were sitting here six years ago, would you have taken the decision to build a refinery?
That investment is consistent with the DNA of this company. This has been a company of many firsts and if there was one company that would have successfully pioneered this, I am not sure you would have to look beyond NEDP. There are some level of risk taken in a very responsible way that is part of the DNA of this company; if this company never took any risks, I am not sure we will be where we are today. Is it guaranteed that all those risks will pay off? No. But as you know, the vision was 2020 but as at today, do I think it was an inspired decision? Absolutely yes.
When you get to those low moments when you are speaking about $30-$40 per barrel [of crude], then your refinery helps you to get more value that you otherwise would not have gotten if you stayed strictly as an upstream player. It is diversification strategy if pursued with care. If handled responsibly, it can be profitable.
Is it an economically sound judgement to have to sell a chunk of the refinery products in (the local currency) Naira?
It is not in the strictest sense because when you consider the fact that the key elements of your refinery are denominated in dollars, the CAPEX to build is dollar denominated, the feedstock you buy is also dollar denominated. It is a huge exposure when you are then selling your refined product in Naira. And a Naira that is showing a significant level of instability in exchange rate against the dollar. It is a nightmare but I believe that those are some of the things that task our creativity. Our creativity in resolving this is going to be a combination of operational and commercial measures. Commercial measures to seek the appropriate hedging structures that hedges against currency devaluation and also price fluctuations.
NDEP averages 12,000BOPD from the Ogbele field but can the existing reserves sustain it for another 2-3 years for example?
At the start of 2021, we were on 9,000BODP but about nine months after, we had cruised to 12,000BOPD, not because we have drilled an additional well but an outcome of production optimization and well intervention in a “rigless” way. We strongly believe that with the envelope of what we have today, can sustain that 12,000BOPD both on the infrastructure level and in the sub-surface. We are going through some sub-surface data [that] shows us prospects that are decent and significant and material enough not only to sustain the 12,000BOPD threshold that we are on right now but to take us higher by a factor of at least 50%. And this is the general story of the Niger-Delta basin.
At the time we took over the asset, the initial view was that there was about five million barrels of oil in place but at some point, it was upgraded to 10 million barrels in place. In 15 years of production, we have successfully extracted 20 million barrels and we are still producing at the level that we are right now. So, the continuous examination and re-interpretation of the data that we have today shows us that there is still a whole lot possible. We are finding out is that most of the reservoirs that we have in Nigeria contain a whole lot more than we have given them credit for. What is necessary is the proven experiences at the subsurface examination and interpretation and the right skill set of being able to drill the right wells and drill it at the right cost. And then, for the above surface skills to set up the above ground infrastructure to operate it. We have that in NDEP and not just we do have that we are carefully making the right calls of adding horsepower in the relevant areas such that we would continue to function as a center of excellence for hydrocarbon discovery and extraction and safe production.
What about the undeveloped assets: Omerelu and OPL227?
We are carrying out re-interpretation and reassessment of the resource that we have in Omerelu and OPL 227. We will soon see some limited campaign in terms of further exploration and appraisal in both Omerelu and OPL 227. We are convinced that the outcome of the ongoing subsurface data review will translate into a new field development plan for those two assets and they are firmly within our program of expanding our resource base as a company.
Are you thinking of more asset acquisition and can we briefly talk about gas?
Starting off from where we are today, Omerelu and OPL227 are in play for us. But I think the reality is that when we are done with the [data] reinterpretation and then we can speak with certainty about them.
In terms of gas play, we are 53MMscf/d and we are on a journey to double that in 2022. That’s for the ready market. But there is also new investment in capacity we are making. The lead time for gas development is such that you cannot wait until the problems are fully solved before you make the investment otherwise you would be left stranded.
Who are the main offtakers of the 53MMscf/d of gas that you produce?
What we are doing today is that we are still supplying to only those two guys but for one of them, which again I will like to keep quiet about, we are going what you can call an excess gas supply which they are happy to take because they have got the capacity to take more. But we are also conversing with some other domestic offtakers who we expect within the next couple of months should come onboard. And the excess gas becomes a subject of a contracted arrangement with them.
What is your sense of the end of the fossil fuel era ?
At some point, whether it’s 10 or 15 years from now, we will begin to see the shift as has been evident over the past 3 to 4 decades. We have been seeing an increase in the energy mix to what it is today. Would it lead to the elimination of oil as a primary energy source? No, but there are certain events that would alter the energy mix.
What is clear is that globally, gas will play that role for the foreseeable future as a transition fuel. For us in Nigeria, we must focus on gas because of the many other things that it catalyzes, we must focus on gas because of its ability to help us get out of the power deficit that we find ourselves in, we must get more into gas because of the feedstock characteristics of our agribusiness and our petrochemical business. We will continue to use gas either as fertilizer, urea and many other gas based industry. Gas looks like it is going to have a more enduring energy mix future globally and in Nigeria than it is for oil but the timing when that inflection would weigh more on gas than it is on oil is going to be driven more by events than by the passage of time.
You talked about planned increase in gas processing capacity; how much increase, in what time frame, are you looking at?
What we have today is about 100MMsfc/d processing capacity. We have pre-invested and taken an investment decision to expand that to 400MMscf/d. We are expanding it by an additional 300MMscf/d. We have taken custody of the equipment to carry that out and at the rate at which we are going, we foresee that in the next one or two years, we would have installed and commissioned that additional 300MMscf/d. There is more than enough latent demand in the market both in terms of export and domestic consumption.
You did say that your current production of crude is 12,000BOPD and now you would be running this 11,000 barrels per day Refinery. Does that mean you commit all of that crude volume to the refinery?
No. We still have obligations as it were in terms of payments that we have to generate in dollars so the option of export sale of our crude is not one that we can take off the table so that we do not default in our obligations. The PIA allows us to buy crude from within the country either from the NNPC or other operators and devote that to refining. We are going to run the refining as a standalone separate business such that with or without the crude from the upstream side, we can continue to run and operate with assured feedstock supply.
If the refinery is a separate entity, why is the gentleman you hired to run it not CEO but GM?
We are in a growth; we are in an evolution and one of the key principles guiding our success is the fact that we operate very lean and we grow responsibly. There are plans for each of the subsidiaries to be run by substantive CEOs. I double as CEO for the group and also for the entities but as we grow and as we create the robustness of our cash flow, we then begin to onboard each of the people that would take each of these entities and run with them as separate SPVs.
Would you say that your upstream asset would be able to do say 18,000BOPD in the next five years?
The five-year journey would see us with our own equity of crude in the upstream of not less than 50,000BOPD. At the midstream gas processing, we will directly be pushing not less than 300MMscf/d and in the refinery, we see it growing beyond 11,000 barrels per day during that timeframe. We have a clear view as to where our five-year projection is like but we strongly believe that the next five years is going to be transformational for us. Transformational would then be interpreted in terms of scale. Will the scale come from the current set of assets that we have today? No. We are keenly looking at acquisition opportunities in order to provide the resource base for the kind of target that we are shooting for.
Let me ask you about the ongoing Shell divestment. It’s down to two companies. A lot of people are upbeat about ND-Western being the lead runner. NDEP is a large shareholder in NDWestern. What is the model?
We are looking for resources where we can find them. We will also continue to put ourselves forward where those opportunities are manifesting themselves and it is only a matter of time. Because we also recognize that the people who are divesting are not just bothered about what they would cash out on but also about the legacy that they are leaving behind and how that would be sustained over time. When you get to that point, it is companies like us that have continued to prove ourselves that would be there ultimately. Whether that would happen during primary divestment or secondary one, is anybody’s guess but we are on a long game and we are going to stay there.
Did companies come to you who were struggling to pay their signature bonus in the marginal field bid round and therefore asking you to take over?
Yes we have had several of them and we have had them in the tens. We have been approached severally but because we are also a very careful builder of value, we are not carried away by everybody that approaches us. We are looking at above ground issues, the chances of being able to operate those marginal fields successfully and a compendium of other factors in other to make up our minds whether we are going to go with anyone of them or with nobody at all.