By AKPELU PAUL KELECHI
Kayode Adegbulugbe, Chief Operating Officer of Green Energy International Ltd (GEIL) is upbeat. He is out to make a statement and believes that he has nearly clinched it: delivering Nigeria’s first indigenous Onshore Terminal at Otakikpo, in Oil Mining Lease (OML) 11, Rivers State. Achieving that would be a major milestone for the country’s E&P independents.
GEIL is the operator of the Otakikpo field, classified as a marginal oil and gas accumulation, in the eastern Niger Delta, currently delivering in excess of 11,000Barrels of Oil Per Day (BOPD).
Adegbulugbe’s ebullience is not only fuelled by this impending delivery of 750,000Barrels of crude oil export terminal expandable to Three Million Barrels. He is also excited by the timing of the construction: the project is far ahead of schedule. He declared this to a gathering of industry professionals at the recent Society of Petroleum Engineers symposium in Lagos. As keynote speaker, he gave insight into the backstory and challenges of executing the project.
Is Green Energy on-track to deliver its onshore terminal?
Adegbulugbe: [In collaboration with our strategic partner, we are] delivering Nigeria’s first indigenous onshore terminal six months ahead of schedule. First, to show the rest of the world that a Nigerian indigenous operator could deliver such a complex E&P (Exploration & Production) project in record time utilising local resources. Second, to [dispel] the notion that such complex projects in Nigeria are notorious for taking a longer time to complete, lasting up to 5 years or even 10 years in some cases.
However, contributing to Nigeria’s energy security is our primary goal. The terminal will deliver its first 500,000 barrels of oil capacity by second quarter 2024, less than 10 months after the foundation of the project was laid (in fourth quarter, 2023). No Nigerian Independent has attempted such a complex E&P project before. It was usually left to the IOCs.
Of Nigeria’s five onshore terminals, none is operated by a local independent. Escravos terminal, built in 1989, is operated by Chevron. Shell operates the Forcados and Bonny terminals while Agip operates the Brass terminal. In terms of capacity, ExxonMobil’s Qua Iboe, completed in 1971, is the largest onshore terminal in Nigeria with a capacity of 8,520,000 Barrels. These terminals, along with their offshore counterparts, provide close to 95% of Nigeria’s foreign exchange earnings and about 80% of its budgetary revenues. The oil sector alone contributed 6.63% to the country’s total real GDP in Q1 2022, according to the National Bureau of Statistics.
What were the challenges in arranging financing for construction of Otakikpo Onshore terminal?
We spent four years going to the international banks and making various presentations yet, we were not getting the deal closed. We then realised that we were competing with the IOCs and the NOCs for the same bucket of funds. We spent four years talking to the banks only to realise that we were not going to get this deal closed. At some point, the banks decided to impose some strict contingencies on our data. We were doing 6,000BOPD from two wells but they insisted on running our models at 10,500BOPD from six additional wells at $50 per barrel.
We thought about it and [realised] that there is a risk factor out there from a subsurface perspective and from a cost perspective. The [added] fact that we are an indigenous company also has some risks attached to it. So, we decided to have a staged approach to the terminal development by reducing the risks associated with the project and developing in-house capacity. We started by drilling two wells in 2022, reducing the sub-surface uncertainties and increasing our cash-flow situation so that we could use that cash-flow as part of our equity contribution towards the project. The banks are mostly concerned about the critical ratios of your debt-to-equity ratio and your coverage ratios. This approach helped us improve ours. But no matter how good your sub-surface department is and how confident you are with all your models; the banks would still impose a lot of contingencies on your data.
The Otakikpo Marginal field is two kilometres away from the shoreline and that provides two challenges: managing funds to maintain your facility and keeping a lid on the very high cost of evacuation, especially if you are doing up to 12,000 BOPD. There are a lot of sub-surface uncertainties because you really don’t know initially if the field is a 5,000BOPD field or a 20,000 BOPD marginal field. We felt initially that Otakipo would be like 5,000BOPD – 10,000BOPD; So, we installed infrastructure to handle that level of production. More drilling however, indicated that this field could deliver about 20,000BOPD.
Additional wells improved your cashflow. What outflow level was break-even?
The cost of marine operations is very expensive whether you produce or not. At less than 5,000BOPD, you would barely break even. You are always incurring cost of storage tankers, cost of tug boats, and costs of gun boats among others. This means that, the moment your production gets below a certain limit, your costs of production per barrel is unsustainable and that’s probably why you see a lot of stranded marginal fields located less than 10 kilometres to the coastline. This is a challenge and is the reason why we’re installing the first indigenous onshore terminal in Nigeria.
With the road block at the banks, how did you arrange financing?
External inflow for project financing such as this has been drying up steadily since the climate change [movement]. So, we looked inward, fortifying the bond and business relationship with our local service partners like Cakasa (the engineering contracting firm).
Our ability to convince Cakasa and other service partners to provide vendor financing for this project helped us reduce the debt that we would be needing from the lenders and it gave lenders comfort to know that somebody else was willing to take part of the risks. It also fostered a very deep relationship because once we can get this done, the next project will be easier to discuss with companies like Cakasa. Cakasa Projects managed all the onshore portions of the terminal project that includes the Tanks, the LACT Units, the Pumps, the Generators and everything else.
Apart from them providing funding, it also reduces the project management interface because now we are dealing with only one contractor that would supervise all the other sub-contractors that work with them.
Any lessons for the industry to learn from your challenges?
When we went back to the drawing board after four years of merry-go-round, we knew right away that we should be able to do what the banks do not have the time to do for us, such as build a model for you to tell you how much equity you need. So, during COVID-19, we engaged the financial industry to identify the trainings that were critical to developing in-house capacity especially as it relates to building financial models. It is from your banking model that you would know if your project is bankable and if it is not, what needs to change to make it work.
The Advanced Financial Modelling course was a very rigorous training that had a success rate of 40% at that time and I am proud to tell you that all the GEIL staff that went for it qualified on our very first attempt. Today, we have a one-stop-shop where we can build everything. So, all we require now is just one day with the banks; so that we can explain the project and give them whatever they want to aid their decision-making process to move to credit.
As outcome, within the last 18 months we have been able to close six deals – vendor financing, off taker financing, various short-term facilities from local banks, worth approximately $750Million to be able to move our project forward incrementally from 3,500BOPD to 11,500BOPD. We believe that before the end of 2024, we should be able to get to 20,000BOPD. This is in addition to delivering Nigeria’s first indigenous onshore terminal by Q2 2024, a clear six months ahead of schedule.