‘GEIL Will Build a Gas Based Industrial Hub, one Brick at a Time’ - Africa’s premier report on the oil, gas and energy landscape.

‘GEIL Will Build a Gas Based Industrial Hub, one Brick at a Time’

Green Energy International, a Nigerian independent E&P firm, is in an expansive mode; drilling wells, installing a gas processing plant, assessing crude oil refinery investment, targeting Gas to Power and CNG markets, talking to partners about a methanol plant and hoping to deliver in these spaces and aggregate them into an industrial hub, licenced as a free trade zone, in Eastern Nigeria. Its chairman and CEO, Anthony Adegbulugbe, a professor of Energy Management, fielded a range of questions by Africa Oil+Gas Report’s reportorial staff. Excerpts:

AOGR: GEIL is currently implementing its expansion plans for Otakikpo field, onshore eastern Nigeria,    drilling two wells. You spud in April 2022. How is the project doing: funding, drilling, and hook up?

Professor Adegbulugbe: We have achieved our 3 major objectives for the 1st well.  These are to (i) deliver the well without a Lost Time Incident (LTI) (ii) encounter a commercially successful pay, and (iii) achieve the first two without damaging the asset.

People who had plan to do modular refineries but they cancelled their plan would be regretting that decision now. There is a lot of demand for aviation fuel now and once you deregulate and let the so called market forces take place, you will find investment will go where the opportunities are.

What’s the production story of Otakikpo field and what percentage increase on the current production do you envisage from this campaign?

 The Otakikpo -04 well is currently onstream after a successful well delivery exercise.  The Otakipo-5 drilling is going very well too. Otakikpo 4 has delivered beyond our expectations. So imagine that you are doing 4,000BOPD and just one well doubled your production? And this is at a choke back rate. It could do much more but we had to choke it back. We tested at almost 3,200 barrels and we decided to choke it back to conserve the energy. We hope to have the Otakikpo-5 online by the end of Q3 2022 and double the field output. There were three wells (at the time that GEIL was granted the marginal field in 2014). We re-entered two in 2017 and they produced around 6,000BOPD at peak, but that that has declined now. Before this campaign, we were doing around 4,000BOPD. If we allowed the wells to flow at their full capacity, it would mess up the formation. It was the same strategy we applied when we started in 2017 and this is going on six years and we were still doing over 4,000. That is a long time. Whereas if we had dragged it to produce at say 8,000 barrels per day, by now, maybe we would be doing 1,000 barrels. So that is the same strategy.

How do you get the funding for this project?

You know we are a partnership with Lekoil and I don’t want you to get the impression that all the money is coming from Green Energy. We are actually carrying 60% of the campaign and secondly, we have been very prudent with the way we spend our money. We don’t have private jets and all that so most of our bit of the money is from internally generated cash and a local bank.  

Do you want to put a number to that?

We want to be a bit circumspect but you should just know that we are prudent and the story is that we run a very prudent company and majority of our bit of the money comes from internally generated funds.

Would you want to take advantage of this success and drill more wells, immediately?

We will drill more wells but not in the immediate term. The philosophy of our company is to take it step-by-step. We are ambitious but we are not over ambitious. We are going to be doing it stepwise so that we can learn all the things we can learn, not only on the geology, but others as well. After we have learnt all that we can learn, we can step it up and step it up again and again. After this campaign, we will sit down internally and with our partners and ask what we have learned and determine what would be our next height to scale and we will plan the strategy accordingly.

You mentioned somewhere that your production operation is “amphibious”. How do you explain that?

We are not totally on land and we’re not totally offshore. Yeah, okay, we’re not offshore and so it is challenging in the sense that we have to not only deal with the issues related to onshore but our evacuation has to be offshore. We have to combine it with marine. As an example, a field that is purely onshore is hooked up to a pipeline onshore that solves all its problems. But we have to not only do that as our only route for evacuation is through the sea. That is why we say it is challenging but it also has some of its advantages which I am happy to tell you about.

So you barge your crude to an evacuation facility, more or less?

Do we call that barging? We are not barging. We have a two kilometre pipeline onshore from our facility. We produce there but because there is no viable pipeline that will take us to Bonny or to take us to any of those onshore terminals, we have to lay a six kilometre pipeline offshore. Then we use a shuttle tanker to help up take the oil for another six kilometres to a terminal, Amni’s (Ex-IMA) terminal. That is why we describe our operation as a little bit challenging because we have to deal with the offshore and onshore aspects of the operation. We pump the crude six kilometres offshore, to a point where a shuttle tanker comes, takes the crude to Amni’s terminal, dumps the oil there and comes back again to re-pump.

That shuttle tanker is on the Atlantic and your location is very close to the coast and that is why you do not need more than six kilometres of pipeline?

if we were located, say, 20kilometres from the coast, we would have been stranded like almost 18 fields around us that are within a 30km radius. They cannot produce because they cannot evacuate. But because we are close to the sea, we can quickly evacuate our crude. When we started, we thought of all these combinations that include barging, pipeline and so on, but at the end of the day, we solved the problem by saying why don’t we be amphibious? And like I was trying to explain to you, it has its own advantages. We do not have all these thefts people talk about. We produce 100 barrels, we get 99.99 barrels. But others produce 100 barrels and get 60 barrels but we get 99.99 barrels. Nobody has that record in Nigeria except us.

What is your cost per barrel? If GEIL has been spared the challenges of vandalism that other operators lament about their evacuation, it should show up as lower lost per barrel..

 Our operation is more challenging than most of our peers being amphibious in nature which implies incurring costs both onshore and offshore. We have deployed best-in-class cost management strategy over the past five (5) years to ensure our overall cost per barrel is competitive given our unique operational situation.

What are your expectations from the implementation of the Nigerian Upstream Cost Optimisation Programme (NUCOP)?

We welcome the implementation of the Nigerian Upstream Cost Optimisation Programme. We are committed to this programme because a low-cost operation is beneficial to all and is the only way to guarantee business sustainability in a sector fraught high volatility and uncertainty.  As a company, we are playing our part to bring down our cost per barrel and increasing our production is a big step in that direction. I served in a committee before the (Nigerian Upstream Petroleum Regulatory Commission) NUPR was created. I think the average and you can collaborate that, the average cost per barrel was hovering $30-35, two years ago when I was in that committee. Which everybody thought was getting too high and something had to be done. Some of the reason it was high was on contracting, I think. I served as a representative of the Independent Petroleum Producers’ Group (IPPG). I am sure that our cost is less than 20 dollars per barrel.  We are working on all options to see that it is down. In the next 2-3 years, I want to see 12-15 dollar per barrels production cost for Green Energy.

There are companies whose costs amount to $40 per barrel

They will not be in business for a very long time but we want to be. There’s a phrase that I like so much, “Capital stewardship”.  That is all this is and we have always been very particular about how we spend money because we don’t have too much of it. We have seen that cost of our evacuation, for us, is still really too high, but the key issue is that we are already optimized more or less on the onshore thing and on production. Our guys are well trained and we could still drive it down. The big chunk for us is the marine aspect: We have to manage the 6km onshore pipeline, we have to have a full gunboat. We have to pay for tug boats when we want to moor, you know, things like that. So those are things that we have seen and analyzed. A bulk here, a dollar there and our asset team is working on how can we minimize this. Is it by going further? If we go further, then we have to get a bigger vessel because of the draft. Because we are about 6km, the draft is about one to one from where we are. So, there’s a limit to the size that we can carry but when we go further, say maybe we can go 20 kilometers, who knows? To go by our calculations, we can carry a bigger vessel. So those are what the asset management team is doing, studying and we’re not leaving any option unattended to; both the terminal and synergy with other FSO in the region so we can drive the costs really down. And I am sure that in the next two or three years we think we can get to that point.

The name of the company, Green Energy, suggests a strong focus on lower carbon energy sources. But you have produced crude oil alone for going on six years now. What are your current plans to increase lower carbon products in your production mix?

I am sure that our cost is less than 20 dollars per barrel. We are working on all options to see that it is down. In the next 2-3 years, I want to see 12-15 dollar per barrels production cost for Green Energy.

 Our objective to deliver reliable and affordable energy to the world without jeopardizing environmental and social excellence makes us prioritize, plan and implement the development of associated gas reserves in parallel with the oil reserves; a very atypical strategy that clearly separates us from our peers in the industry. We are on track to commissioning a 12Million standard cubic feet per day (12MMscf/d) modular LPG extraction plant and 6MW power generating plants at Otakikpo by Q4 2022. With 12MMScf/d input, we think we will get 60 metric tons per day. In the context of the demand in the country, it is small, but this scale of modular LPG plant will be the first to be installed in the country and we intend to showcase same to other industry players and the Government as one of our bold contributions to eliminating associated gas flares in Nigerian oil fields.

Are there other lower carbon products, apart from LPG, that you envisage? Are you doing gas to power, you doing LNG small trucks, you know, that sort of thing? What are the plans in that area especially as Nigeria has declared this as a decade of gas?

When we got to this business, everyone was flaring and the penalties were low so nobody cared. But we decided to have an integrated field, using this as a small scale to do an integrated field that is exciting and you are right that we are doing gas to power. The 6MW gas to power which we are going to commission very soon is much more than we need so we are going to give the excess to the community. We had this romantic view of life at the time we came into the business. We prayed that the gas (from our oil reservoirs) will be rich so that we can also extract the wet gas which is LPG and again, our dream is coming true. On our field operations, we only use 1 or 2 MW of electricity so we have up to 4MW in excess. So what are we going to do with the excess power that we have? We planned an industrial park in that region. But things are a bit slow because people get scared and say, “what are these guys trying to do?” but sooner or later, the communities will cooperate with us and we will have that built. Here is a place where you have gas, and you can have electricity and with that, you can transform the economic landscape of that region.

Very soon, we are going to be putting CNG on a small scale of about 2-4Mscf/d of CNG in that region first but we are going to be expanding with time. We will have trucks deliver it to some of the estates and companies in that region and even to the greater Port Harcourt area. If it is successful, we are also planning to expand CNG so that we can take gas to the eastern region of the gas network in the country so that those who are in Lagos or so, can get it. We are planning all these little schemes to just tell people to think outside the box because we can really do a lot outside the big billion dollar projects and still make some impact. Just before COVID-19, we were on the verge of signing a contract with the Chinese to have our methanol plant. The partners came in and we met with the Minister of Trade and Investment, the former Governor Adebayo. Again, because of the need for us to focus and get this production going, there is still a need for us to revisit that. All in all, we are looking at methanol which will take almost 20MMscf/d of gas and then the CNG planned which will take gas in the first instance to see if they can satisfy the Port Harcourt area. We may ultimately jack up the gas to power from 6MW to 10 – 20MW, because if we eventually decide to do an onshore terminal, they might need around 10-15MW of power and that is the kind of integrated approach that we are looking at to develop the field.

When you say if you ‘eventually do the onshore terminal’, does it mean it is an option?

if we want to go forward, if we do 10,000Barrels of Oil Per Day (BOPD) now and we want to go to 25,000BOPD, we are going to have a challenge with our evacuation. Our present evacuation option will not work. If you want to take off on that scale and you are still depending on a third-party terminal, is that reasonable? Due to no fault of yours, if they close down for just one day, please multiply 25,000 by $50 and you will understand the amount of money that is on the table. That’s why I am I’m saying we have not closed out any options and that is why we are saying we might still build our own terminal. We might still talk with the likes of Notore and so forth. But definitely by the time we are going to 10,000 barrels, we have 140,000 barrels storage onsite now that we are doing 5,000 barrels and that is 14 days. If we are now going to 10,000 would 14 days storage be reasonable? If there is some problem on the other side and you keep on producing in just 14 days you won’t have any storage capacity and those are some of the issues that we are looking at. Every option is on the table and we are still looking for ways to debottleneck our processing facility and a lot of interesting things are going on. Again, this goes back our original philosophy of taking things step by step.

These “little schemes” as you call them, look like pieces of an industrial hub; power plant, methanol plant, LPG, CNG..

We are also planning an industrial park there and we have also applied to the Federal Ministry of Trade and Industry to make it an export free zone. When you have gas and power, interesting things can happen and I think our application has gone very far in government and we are likely to be declared an export free zone there. That way, we can have people bring their gas based industry there. In fact, we are pioneer member of CORAN which is an association of modular refineries operators. We have a license for a 5,000BOPD modular refinery there as well. So that general area becomes something else. We want to change the face of that area.

WE HAVE A REFINERY AMBITION but it hasn’t taken off because we are small company and we have no money. What is propelling us are ideas and the grace of God. We have so many things that we want to do and these young guys are too fast. I am the one slowing them down and asking them to take it easy and just take one step at a time. We have gotten our license 4-5 years ago and we were among the first set of people that got it and we went so far with some of the people that we could do it with but when you have a limited amount of money, what do you do first? The first thing is to produce otherwise you will not be in business and now it looks like we are getting there. 10,000 barrels is not a lean feat like you said and it is choked back; so with that increase in cash flow, we can do other things that we have planned. And like I said, we want to have an export free zone over there and the ministry has gone there to inspect and it could happen very soon. I wish we had done this two years ago with the diesel price being what it is today. I could have just retired early and gone to read my bible.

You are saying that the refining business has good margin possibly?

Yes it does. I mean that is the experience we have now. Once the prices are right, everything is fine. I am sure that people who had plan to do modular refineries but they cancelled their plan would be regretting that decision now. There is a lot of demand for aviation fuel now and once you deregulate and let the so called market forces take place, you will find investment will go where the opportunities are. We have a license and Crude Oil Refinery-owners Association of Nigeria  CORAN, has also just been licensed by the government through the CAC. And Barrister Ilori who is our Director of Corporate Services is the secretary of CORAN so we are still very keen on doing that. So when you have an export free zone, a lot of interesting things can happen.

Let’s talk about your host communitY issues. In your view, is the 3% of (the Previous Year’s) OPEX mandated by the PIA the best idea? Is it    too low or too high?

Operators are required to contribute 3% of the previous year’s OPEX to their respective host community development trust funds. We believe there is a lot of value in investing in the development of the host communities where we operate.  We took a unique approach to host community development and incorporated host community development trust funds for all our host communities as far as 2014, long before setting up a trust was a statutory requirement. Importantly, we funded these trust funds before achieving first oil because we wanted to positively impact our host communities notwithstanding the uncertainties. I believe this gesture might explain the relative peace we have enjoyed so far.  In our view, with the NUPRC taking an active role in host community development, stakeholders can expect the host communities to derive more value from the 3% OPEX contribution required by the PIA 2021.

  • We have not had any host community issues since inception at Otakikpo and the reason is that they are very educated people. We have Chief Justices, we have politicians, we have generals and royal admirals there. For them, once we have an MoU, we follow the letter with a good spirit. When it was COVID and we explained to them, they understood and reduced their demand. For the PIA, the advantage for us is that it sort of streamlines what we do. So instead of us having MoU that is guided by just the two of us with either party over negotiating or thinking that the other cheated him or her, we now have an all-encompassing MoU saying that 3% of your OPEX will be dedicated to the community and we now have a trust fund registered with the government. So let’s that we finish our financials at the end of the year and give it to the government, they know what the OPEX is and that is what we are going to give to the communities. But with the government, what we would do is just provide some kind of oversight; we are not going to be intrusive with what they want. What we did in collaboration with the then DPR was to do a NEEDS assessment so as to have an idea of the community needs and we have submitted that to the regulator. So going forward, what we need to do is just implement. We have setup the trust fund also and once we kick start in August or September plus maybe another 60 days, we are ahead of schedule and we are ready to start from tomorrow because it reduces the subjectivity in negotiation and we are very happy with it.
  • Pre-PIA, it is like we saw this coming and before the PIA, we already had, in place, a very progressive community engagement. Even before first oil, we were already doing a lot for the community. We give electricity to the community right now and we give them diesel for their generators free of charge every month.

How many litres of diesel did you give them every month?

We have always done that PIA or no PIA. Nobody compelled us. When we came to town we said hey, let’s do this because it is just common sense. They see a shiny little city there and they are in darkness. It means you are attracting vandals to your site. We also did trust fund ab-initio without the PIA. We had two sets of communities of about five villages. One is made up of four villages and the other one is just one village. We asked if they wanted to come together but they said no because of age old rivalry or something. So we have two MoUs with them.

We produce electricity and give them electricity and we employ a lot of their indigenes and turn them into operators. I remember there is a joke around the villages that every lady wants to marry our boys because we treat them very well. We started a programme called Future Leaders Programme PIA where we give scholarships; and our scholarships are bigger than what Shell was giving those days. We give N500,000 to each student as soon as they get into the university and when they are done, they come work with us. Then we also started encouraging the local entrepreneurs and I would say 80% of our civil works that runs into billions of naira are done by indigenous local contractors.

We have always had a very robust and progressive relationship but then, we now have the PIA and the regulator is telling us that we are ahead of them because we have submitted everything and they say ah, you are ahead because we have not come out with that regulation. It is good sense because if you don’t have peace with your community, someone would just come up one day and disrupt your operations and we cannot afford that.

Do you have to adjust anything in your ongoing Host Community Plan to fit the one stipulated by the PIA?

The PIA introduced far reaching reforms in the development of host communities and this has required our team to overhaul the existing MoUs and the obligations therein to ensure compliance with the PIA.  Importantly, we are required, in collaboration with the host communities, to conduct a host community Needs Assessment which then dovetails into a Community Development Plan (CDP).  The CDP then provides the roadmap for the Board of Trustees of the HCDT to implement projects which are targeted at the peculiar needs of the host communities.

 So far, our host communities have been well disposed to these developments and they have presented their best hands to help us deliver sustainable development initiatives in their communities.

 

You are not refining yet. How do you give them diesel?

We give them money and they buy it themselves. They have an old arrangement of diesel generator and we help fund it.

The Marginal Field bid round is being wrapped up. With licences now granted to the awardees,  the sight to first oil is clearer. What is GEIL’s Marginal field story? You applied? Did you get? Did you go to the secondary market? Can you tell us your 2020 marginal field bid round story?

 

While we are very interested in increasing our reserves and production base, our Company’s current focus is primarily to develop and optimally exploit the reserves in its current assets. We did not apply. We had a soul-searching internal discussion and I am not criticizing anybody. You are given an opportunity but instead of maximizing your opportunity, you are busy acquiring and putting more assets into your portfolio. To us, that is not the way to do it. I was approached by so many people to come and partner with them and we said no. We told them to be careful about this and that and to be careful with people who will tell you they will raise you $200Million but at the end of the day, you will end up in arbitration and they won’t raise you a penny. We thought we have an heirloom; let us optimize the opportunity and so show the world what we can do. Acquiring other assets in the future would not be a problem once people can see that you have made good use of the opportunity that you have. I am the happiest person that didn’t apply and that is because the work we have on our hands right now, we can’t finish them in the next five years.

This is a parable of the talents.

Honestly, a company that has an LPG plant, a power plant, an industrial park and so on is huge. One other thing about our story is that we are building what I call technocrats of the future. Our lawyers and our engineers, about six of them in phase one and four more in the next phase making them ten. They are going to one of the best business schools in the world, Our engineers have MBA and our operators have MBA and we have an excellent workforce.

If we want to increase to 25,000BOPD, our present evacuation option will not work. We can’t depend on a third-party terminal…

But they are not committed to working for you when they come back.

We have not lost any of them since we started operations seven years ago. The only person that resigned did so because he was relocating to Canada to be with his wife. I am proud of that and when we go to meetings, people say your team is younger people and they ask them how they are coping with academics in Warwick which is a very though business school. The second bit is that during COVID, nobody could go out and nobody could come into the office and my asset management head suggested that we turn this into something productive and they started training people in financial modeling. Both engineers and finance people and they started doing certification courses and again, I am not bragging, I want anybody to challenge me, no bank in Nigeria has the capacity of financial modeler in Nigeria than our company. No bank in this country. I am not saying that they are bankers but financial modeling, to structure and do the modeling, no bank has that capacity.

So if a bank throws a number at you, you can vet it?

They can’t even do what we are doing in our company, so we have to do it for them because they can’t do it. so why do we do it? There was this time we went to London and somebody came to us that they can do this algebra modeling and that we should pay $400,000 for it and I said ah, I am a university man and if I have $400,000 I would set up a university but he (Kayode) picked it up and we have trained four people already in that with an additional six to come this October. And I am not saying how to give loan oh, no but the real financial modeling.

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