CHIKEZIE NWOSU will retire as Managing Director/Chief Executive Officer, Waltersmith Petroman in the next three months. Which makes this second part of Africa Oil+Gas Report’s interview with him a valedictory feature. He talks about the company’s upstream business; its asset in Equatorial Guinea, as well as host community, human capacity development and “the future” issues, including the planned investment in renewables.
Waltersmith is an influential player in the African Exploration & Production sector. EXCERPTS by Akpelu Paul Kelechi….
Waltersmith dropped its acquisition in Uganda and later took up assets in Equatorial Guinea. What’s the update on the award?
In 2019 we bid with many other international companies for the EG-Ronda 2019. We put in the most competitive bid for Block EG 23, which is an offshore block roughly about 70 metres of water depth and with significant oil and gas reserves. There are discoveries there, they just have never been developed to be put in production, but they’ve been tested so these are not exploration type blocks. We negotiated a production sharing contract (PSC) with the Government, and we have signed off on our own-in February 2020- and they told us it was going to go through their legal process. Unfortunately, both COVID and some internal processes within Equatorial Guinea meant that they have not yet signed. Now at the launching of the NNPC Limited, the (then) Minister for Mines and Hydrocarbons honorable Gabriel Obiang Lima was there and we again reminded him of the fact that we were still anxiously waiting. And they actually sent us a letter indicating that we are still on track and that once they go to the processes, they would sign the PSC and return it to us. We intend to set up an office, which would be our first International office, in Equatorial Guinea.
So, you see, these things take time. We earlier talked about negotiation with the Nigerian government for Assa and OML 20 taking about four and a half years. Now we are talking about Equatorial Guinea having taken three years or there about, and we’re still there.
Did you participate in this just completed 2020 marginal field bid round?
Yes we did.
Did you get any field?
No we didn’t.
You want to tell us your story behind it?
There is no story behind it. We put in what we think was one of the best technical bids as we usually do and we couldn’t have won block EG 23 in Equatorial Guinea against other international companies if we didn’t know what we’re doing, yeah? We put in the best Technical and Commercial bid that we thought there was and we’re not going to pay anybody any ridiculous signature bonuses because for us, the value from royalties and taxes to the Nigerian government for early development, if you don’t hamper people’s development through paying huge signature bonuses, is much more than any upfront signature bonus. I can almost tell you that in a field where you have about let’s say 20Million barrels of Reserves, even if you do a conservative $50 per barrel, if you do your calculations well, that’s a significant revenue. And then from there, you pay a significant amount up front of the revenue if you manage to sell it for royalty. Then you take away your costs; we are a very cost-efficient company and then you pay taxes which are significant as well. Those monies cumulated together are much more than any signature bonus. But if you hamper those assets with a huge signature bonus, then those companies will pay a signature bonus but will be unable to develop the field very quickly. Which means that the federal government will lose early revenue from the field. The logical thing to do is bring down the signature bonuses and go to people who are technically and commercially proficient and have the funding to quickly develop and deliver these Fields. That’s what we thought we were. That’s what they thought we weren’t.
Waltersmith now has three arms, your upstream arm, midstream arm and your downstream arm. Is there any point where all these arms coalesce in your host Community relationships? Or are they separate?
We have to deal with the different companies at arm’s length because they have different boards. But all the energy components report in to me and we keep our transactions at arm’s length. The refinery pays the commercial rate for the oil coming from the upstream part of the business. The gas-to-power pays for gas at the commercial rate and then delivers the power at a commercial rate to the refinery and flow station at this moment and we will continue to do that. How do we deal with the communities?
At the moment, we have Global Memorandum of Understanding (GMoUs) tailored towards Waltersmith as a group not as individual companies. When we invested in the refinery, we adjusted the value of our GMoU along the principles we agreed with communities that for any new projects of XX size, we’re going to increase the GMoU funding by a certain amount of money and that’s what we keep doing. With the refinery we increased it, with the gas business that will also happen. In terms of what we do in the communities and what we’re also trying to change. Human Capital Development HCD is one of the most critical ones for me because it’s not about just building hospitals or building schools because everybody does that. The quality has to be right and then putting utilities in place, like water, electricity is still a challenge and we’re trying to address it together with the other companies in the same operational area and providing good roads. We want to provide good paying jobs and so we started a technical skills acquisition programme. Now using our HCD part of our project, we identified 200 graduates from the community who had graduated but were not industry ready. We have to prepare them for the industry. From the first batch, there were 50 applicants but only 47 attended. And out of that 47 we have hired 12 formally as staff of Waltersmith into our operations, both the refinery and the flow station and three more are there on a contract basis. So, 15 altogether. We expect that as our project grows, for example our trailer park, we want to hire a few more people from that programme into the trailer park and we also have certified them in such a way that other companies there can also look to hiring them for some of their operations. We’re trying to encourage all our other counterpart companies there to look at these communities and hire from them because the disadvantage these communities have is the fact that, if you open up the competition for those kind of positions to everybody in the country or even in the state, the communities will probably lose out. Okay, so we have a different programme that is for all Nigerians and that is our Graduate Intensive Programme and then we have a specific programme for the communities which is our technical skills, acquisition programme.
It is not about these artisanal skills, like welding and all those things. It’s about operations, maintenance and those kind of skill sets that we are hiring graduates into our operations for. And that to a large extent has brought a lot of better relationship between ourselves and the youth in the community. And as we expand into Assa field, we will continue with the same thing. We’re going to run the programme in 2023 as well with another batch of about 50.
And we’re going to deploy some of these people who we are training but who we cannot hire directly, into being the supervisors of the project we deliver. Because sometimes we are delivering projects in the communities and the supervision is poor, but if they have their own graduates who have come through our training programme and understand projects, civil engineering work projects and things like that, they can supervise Market store buildings, Hospital buildings and the like and hopefully going forward, as we build more hospitals and schools, we can then start training teachers, and medical personnel who would man some of these facilities as well. So human capital development is an integral part and a critical part of our delivering projects to the community.
Now things are going to change a little bit with the host community regulations. And Waltersmith is one of the first to try and get its entire documents ready and submitted to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for that purpose. We’ve already started identifying some of the people that will from the Committees from the community itself so that will transit from the GMoUs into this, host Community bill.
In terms of spend, are you necessarily spending more or less? You know, you can have this very robust programme but in terms of spend, it can be much lower than what the Host Community Fund in the Petroleum Industry Act mandates you to spend.
I think you said you know me by reputation.
Oh, yes I do.
Then you know that my business ethics are right at the top. So let me explain coming from Shell. Sometimes at Shell, 2% of the CAPEX, before the Nigerian Content started, 2% of the CAPEX of projects was supposed to be allocated to community projects. Any capital project that I was involved in, 2% was spent. Or more. Because sometimes the communities’ needs did not amount to the value of the 2%, I have to go and make the case that our rules internally are 2% and so let us go and ask them for more projects. The same thing here; I have had conversations internally where it has been pointed out to me that you can go and negotiate something lower to be spent. I don’t even know how that is done and I tell them, please do not do that. It’s not while I’m here. While I’m here, for our capital projects, we submit them to (National Content Development Monitoring Board(NCDMB), they calculate what the 3% is and that is what we use for human capital development. So it can be that or more not less.
Why NCDMB not NUPRC?
Oh later on it will become NUPRC. But at this point, for our human capital development, I don’t know how it’s going to transit under the PIA, the human capital development is 3% of the CAPEX of the projects; it is different from the Host Community Fund. The Host Community Fund is under the PIA at this time and it is 3% of your operating expenditure of the previous year.
You did say you trained 50 people?
Chike Nwosu: We brought in 50 but 47 showed up for the training.
AOGR: Was it last year?
Chike Nwosu: It was last year, yes.
AOGR: Okay, you did mention 200.
Chike Nwosu: We identified 200 and we are going through the entire 200. This is the first batch and we are doing it phase by phase. Because if you train 200 people, then you have to bring in a significant portion of that 200 and we have to tie it in with the progress of our projects. So the next batch will be targeted at the refinery expansion. Yeah, and the next batch will be targeted at the condensate expansion while the next batch will be targeted at the industrial park.
Because we also want to provide for the people that will come into the industrial park, the technical, operational, whatever competency, even supports competencies, administrative competence, that are required for them to run their factory, will be from the people in the community first.
Let’s examine this large elephant in the room. Waltersmith has not exported a drop of crude, out of the country since March 2022. The Trans Niger Pipeline, its evacuation route, a has been down for that long. There are people who believe that much of the stolen crude is actually being exported.
I believe that absolutely.
You don’t think that those artisanal refineries-there’s quite a large number of them-are largely responsible…
I’m looking at the logic going backwards because I’ve run a refinery. If for a 5,000 barrels per day refinery, 130,000 litre truck is less than 200 barrels, about 188 barrels. And it you take the dead stock away you would have let’s say 180 barrels. A 45,000 litre truck is less than 280 barrels so you can imagine that for a 5,000 barrel refinery, I need about 30 trucks. Now the crude that is supposedly stolen for illegal refining on the TNP is in excess of 150,000 barrels by the time crude oil theft got to 90%. That is 30 times the number of trucks that I need which is about 750 trucks. I don’t think you could have 750 trucks a day plying that axis without anybody seeing them. It is near impossible to imagine that scale of trucking and logistics happening and that was why I said illegal refineries do not go beyond 40-50,000 barrels per day. The rest of it is a major cartel; I borrow the words of one of my colleagues, I think it is the MD of ExxonMobil, who said that it is an international criminal cartel that are hugely moving away our crude in big tanks not the artisanal or what they call illegal refineries.
The question then is, is it that, once you have a significant volume of theft, you just basically stop producing, so that when the entire production in the country turns out to be just 1.2 million, it is not so much that 1.3Million has been stolen? Or that companies just scale back because you know, so much is being stolen?
Let me tell you about to perspectives about OPEC’s quota and how low it has come. I think Austin Avuru and Osten Olorunshola have shown some work that has been done to indicate that even without crude thefts, because of the lack of investment, you know, these assets will decline. And the decline on the average is 10 to 15% per annum. And the only way you can actually increase production is through new investments, new developments, new production optimization, enhanced oil recovery and things like that. Now Austin, the two Austins, have shown that over the period of the last seven to ten years, I think more likely seven years, there’s been a massive reduction from highs of over 20Billion dollars investment per annum to as low as six Billion dollars investment in the oil and gas industry. That has the most significant impact on our overall production and you know, our OPEC production. So let nobody go away with the thought that it is because of crude thefts that we have gone from two point something Million barrels to 1.2Million. No; investments have not been there to sustain that level of production and to grow it because decline will happen. What you can do is go to 2Million barrels seven years ago and do a decline at 10 to 15 percent and you’ll see the impact of that. Okay? And they even showed the direct correlation between the trending down of Investments and the trending down of production.
Now, however, it doesn’t mean that crude theft is not a problem. It is a significant problem on the onshore assets and he talked about the figures and these are NUPRC’s/DPR figures.
The Waltermith Industrial Park will provide energy products to companies around Ibigwe. That’s the plan. These products are essentially gas and power. Before I ask you where you see Waltersmith in the next five years, there was a point you mentioned at the Nigerian International Energy Summit (NIES) about solar assembly. That was a data point that just leapt at me. I mean, solar, what’s that all about?
There’s something else in our blueprint beyond solar. I’ve got an intern here working on Blue Hydrogen. We recognize that there’s going to be a transition and that the transition will happen through gas as the transition fuel. Our gas business will start dominating the Upstream and we’re looking at the portfolio where that happens and Equatorial Guinea EG 23 is an example of where there’s a lot more in terms of gas reserves in BOE terms and then there’s oil. OML 20 has a lot of gas reserves as well and so we’ve continued to look at those assets. OML 21 as well, where you have the ANOH gas plant. If we start getting gas from there, the total quantum of energy that we are using for consumption will go more towards gas. However, we have to look at the fact that even gas has significant greenhouse gas emissions. We have to start replacing some of the gas to power and fossil fuels to power through refinery into more renewable sources.
That is why we started studying solar energy and these solar panels and we discovered that most of the manufacturing of photovoltaic cells, solar PV cells, were done in China. And we believe that whatever China has as a competitive advantage in Nigeria can provide it as well. We started working with some parties in the United States to see whether we can start solar PV manufacturing in the industrial park.
So part of the industrial park will have solar PV manufacturing so that slowly we can transit our gas business into a balance of gas and solar. Now we’ve also started doing some study communities solar assessments, so the power we want to deliver to the community could be a mix of solar and gas. But we’ve done the enumeration for solar first of all and we’ll take a look later on to see what it possibly means for gas.
But even in our facilities, with street light and things like that, we’ve started going away from using diesel power generators to using solar panels for electrification. So if you go to a facility, all the street lights are solar. So we’re testing this concepts as we move along because we know the transition will happen soon.