Waltersmith: A Second, Bigger Refinery and a Power Plant, on Course for Completion by 2026 - Africa’s premier report on the oil, gas and energy landscape.

Waltersmith: A Second, Bigger Refinery and a Power Plant, on Course for Completion by 2026

In our continuing C-SUITE series, CHIKEZIE NWOSU, Managing Director/Chief Executive Officer, Waltersmith Petroman spoke with Africa Oil+Gas Report’s Akpelu Paul Kelechi on a range of issues.

Waltersmith is an influential player in the African Exploration & Production sector. It has just concluded a three well campaign on the Ibigwe field; it is working to move drilling equipment to develop the Assa Field, discretionally awarded to it by President Muhammadu Buhari, the Nigerian head of state. It has, in its sights, a 25,000Barrels of Condensate Refinery for which its has won access to feedstock. It is finalising a Financial  and Technical Service Agreement on Egbema-Egbema West and Ogada Fields in OML 20. Mr. Nwosu certainly has a lot on his plate. EXCERPTS from the conversation.

Congratulations on two years of running a modular refinery, in addition to your 13 years of producing crude. Give us an overview of the company’s notable achievements since the launch of the refinery.

You very well know that this started by the end of 2020. It has been operating with no single downtime. We currently can peak at something like 4,500 barrels of processing capacity. We are evacuating all our products; we have an over subscription of all products and one of the most challenging products we had earlier which is heavy fuel oil (HFO), we have found a market for it as well. The refinery is doing extremely well and we are successfully executing the strategy we had in mind when we first put the idea together.

When you say the strategy behind the refinery, what do you mean?

Firstly, we wanted to ensure security for our (upstream) production on the Ibigwe field because we were seeing constantly increasing theft percentages on the Trans-Niger Pipeline (TNP). We felt that this might get out of hand at a certain period and this was as far back as 2015-2016, when the discussion started. Our production is roughly about 5,000 barrels of oil per day give or take and that is why the refinery was so sized. Now you see what has happened on the TNP?

Second one was to add to the growth of the Nigerian economy through both the creation of additional jobs and impact on our GDP that consumption of our own energy would bring. If you export crude oil or gas, you earn some foreign exchange and the impact on your GDP is very limited. Upstream companies don’t provide that many employment opportunities but with refining, you have both skilled and unskilled workforce and you can more than quadruple the value that you are generating as an impact on your GDP through just consuming the energy instead of exporting it. So that was another underlining strategy.

The third one was about getting access to more assets around 30 kilometres radius of the Ibigwe field. We believe that by positioning ourselves and being supportive of domestic refining, we would be in a more advantageous position when we discuss with government about some of these assets and that has also turned out positively because we have both a technical and financial sales agreement that was approved by the Group Managing Director (GMD) of the state hydrocarbon company NNPC to take over the operations of the Oil Mining Lease (OML) 20 assets. That’s the Ebema-Egbema West and Ogada. We are still waiting for some peace to reign in that area before we progress. And the second asset is the Assa marginal field which was awarded to us. It was a presidential discretionary award in April of 2021 if my memory serves me right.

“Heavy fuel oil for example, is an International exported product, and some factories in Nigeria actually need this product as well. And we’re able to get some benefits from them in terms of foreign exchange earnings.”

…And about over subscription of your refinery products?

The subscription to take our products is five times as high as the entire output. We have to pick and choose who will come and take it. We give some preference to the Petroleum Tanker Drivers Association in Imo State and NUPENG, Imo State and then of course the rest of it is more competitive.

OML 20 assets, Egbema West and Ogada are supposed to be part of what Shell is putting out for sale in its ongoing divestment from 19 OMLs in the onshore and shallow water terrain in the Niger Delta. Does this mean that you would ring fence it?

It’s a financial and technical service agreement, not a purchase of the lease. Whoever purchases it, we will continue the conversations with them.

These two assets now, do they now guarantee that 20,000 barrel per day refinery expansion?

Yes they do; so you are absolutely right that the strategy was within that 30 kilometre radius. To find the assets where we could expand our refining capacity by crude oil by an additional 20,000BPD and condensates by 25,000BPD. So we build a 25,000BPD condensate refinery that was targeted at the Assa North- Ohaji gas plays. Now, based on the development plan that we put in place as part of the FTSA at Egbema-Egbema West and Ugada should peak in production above 23,000 barrels of oil per day.

So that is the expectation from the development plan we’ve put in place. Currently, I think it’s not producing that much and the last figures we had was about 7,000 barrels of oil per day. But up times were about 41% which meant that on the average we weren’t even getting that amount of production every year. Now we expect to be able to increase up times to the kind of levels we are used to operating at, which is 95% and above. And also to drill new development wells and optimize some of the production in the existing assets.

And in addition to that, we have a gas-to-power license, which is a 300-megawatt license and we needed to have a source of gas for it. And we believe that the OML 20 can deliver about 60Million standard cubic feet per day of gas; that is actually the domestic gas supply obligation for that particular asset and we’ve seen that the potential is there to do 60MMscf/d, in addition to getting some of our gas from the Assa North -Ohaji South gas developments owned by Seplat, NGC and SPDC.

It’s not as if 60MMscf/d, which you might not get to anyway, can deliver 300MW on its own?

No, it won’t deliver on its own 300MW. We need more gas to deliver that but at least that’s a start because we’re doing the gas projects in phases and part of it is, you also know that part of our strategy has a domestic strategy as well and it is to diversify from just producing oil and gas through consuming oil and gas through industrialization. We are working on it and the feasibility study is ready for the 500 hectare UNIDO (United Nations Industrial Development Organisation) supported industrial and Innovation Park, where we expect to attract manufacturing and deliver them gas to power at very reasonable rates because power is one of the major issues with manufacturing.

We intend to attract pharmaceuticals, petrochemicals, which we will probably build ourselves, that’s the petrochemical part, and other industries, medical and agricultural or whatever it is, who need to situate or collocate within the industrial park. And to which we can deliver certain utilities, power being one of them, a good road network, to also export products as well as all the other services. Residential Services, schools, medical services and all that in the industrial park.

What is the time frame for this project?

We expect the industrial park…; so we did the original signing with UNIDO during the commissioning of the refinery. We have since progressed to have negotiations with the landowners about the purchase and we’ll probably do a groundbreaking sometime in 2023. Given the pace at which Waltersmith delivers projects, I would expect that it’s within our previous five-year look ahead so that by 2026, we should be significantly done with the industrial park to get to a point of commissioning and bringing in, you know, all the industry that needs to be there. It is also possible that as we build out the industrial park as we do in a modular fashion, we’re bringing in certain industry earlier on and some other ones much later.

The petrochemicals plant, which will be a little bit of a technical complex, will that come in that 2023 to 2026 window that you mentioned?

That’s our expectation; we are, you know, carrying out a few early feasibility studies on that at this time.

How do you actually balance the need for Forex earnings if you put everything in the refinery?

Strangely enough, without being specific, certain products for the refinery that are not used predominantly in the domestic market go to export.  The typical ones we need here, like PMS, AGO, Aviation jet fuel, and DPK, those ones are domestic. They are priced in naira, sold in naira. Heavy fuel oil for example, is an International exported product, and some factories in Nigeria actually need this product as well. And we’re able to get some benefits from them in terms of foreign exchange earnings. And the other thing I need to mention is that you’re right, we don’t intend to take every single part of our production through the refinery; there will still be production available for exports to earn some dollar but it’s not because we want to particularly earn dollars per se, but a lot of our operations, a lot of the equipment we maintain and everything, we have to pay for it in dollars. We must have a means of earning dollars as well, but please note that our focus is on impacting the domestic economy. That’s what it is and we believe that it has so many attendant effects, positives, with respect to even shoring up our currency. Remember that for as long as we manufacture and consume internally any products that we need to import, that will strengthen the naira. In our small way, we’re trying to do that and as you can imagine, if we stop importing petroleum products, then the pressure of having to have dollars to pay for them will go away.  This issue of subsidies will go away. Yeah, and therefore we believe that those kind of things will strengthen the Nigerian currency. It’s a demand-supply thing. If we have more dollars in the system that we are generating versus the demand to buy dollars for something to go outside. Then we will get the same thing with manufacturing; for if we manufacture things here, we get the raw materials from here, it has an attended impact. Waltersmith wants to show how that model works and hope that other people will take it on as well. So it’s both diversification of the economy, domestic consumption for GDP growth and strengthening our currency.

You mentioned Aviation fuel but it is not yet part of your products in the refinerry.

Yeah it is not part of this yet but it is what we’re going to go to in the next phase of our refinery. We don’t even do PMS now. We do naphtha because of the regulation of PMS. But of course, naphtha is the base substance for PMS. And so in expansion, we’re going to do PMS and so we’re going to have a catalytic reformer. And we’re also going to do aviation jet fuel. And then for the condensate refinery we are going to add on top of that, LPG.

This second phase will also come in that 2023 to 2026 period?

Absolutely; even earlier because for the expansion phase, we are doing the FEED this year and if you know how we turn around things, I would say 24 months from when we complete the FEED after we do the detailed engineering design; maybe for about six months and then after that, we can add 18 months. The current Refinery would have been commissioned within 18 months apart from COVID because it was started from scratch. We started in October 2018 and we were ready to commission by I think, maybe about April-May of 2020 then COVID hit us. And we had to delay it but it was actually completed by October of 2020. We’re now in a position where we’re about to conclude certain agreements between ourselves and other parties so that we can get condensate from the plants to do the refinery. Once those are concluded, we will start building the refinery.

So you would get condensate from the ANOH project?

That’s correct.

Wow, and this is very important. From what you are saying here, NNPC has yielded ….

Chike Nwosu: I am hoping that you would take this off record.

But we’re back on track. The difference between us and any other companies is that we are tenacious; so even when it looked as if it wasn’t happening, we completed our FEED, did EPC Contracting, everything that was needed and then kept it aside and said let’s watch.

Wasn’t that risky?

There’s something called Front End Loading. In front end loading you spend the least amount of money but you generate the most amount of value. Now supposing we hadn’t done the FEED we wouldn’t have known what it was going to cost to build a refinery and there will not have been any basis to compare between us and any other entity. But once our cost was clear and that we had done FEED with a contractor who had built a Refinery, it became clear that we’re the best people to give this Refinery to build. If we hadn’t done any work and that’s to answer the question about some of these other modular refineries, so a lot of them are depending on feed stock not from operated assets or anything like that. That’s going to be a challenge. It is a challenge for them. Yeah, and that’s the front end loading part. We make sure that we dot our I’s and cross our T’s before we jump into any particular project.

“Based on the development plan that we put in place as part of the FTSA at Egbema-Egbema West and Ugada should peak in production above 23,000 barrels of oil per day”.

Would you say this downstream business is as profitable as or more profitable than your upstream business?

Without releasing any numbers, we’re happy with our refinery.

Seplat gives you 2,000 to 3,000?

2,000 and that’s guaranteed but we take more than 2,000 from time to time from them.

You actually have spare for exports.

We do have spare for export but the TNP has been down for a long time.

Oh, that’s yes, that’s true.

 To be concluded.



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