“There is Room to Build a Few More Nigerian Independents for the Remaining Divestments” - Africa’s premier report on the oil, gas and energy landscape.

“There is Room to Build a Few More Nigerian Independents for the Remaining Divestments”

With divestment of chunkier sizes of assets in the last 30 months, International Oil Companies are selling off far more acreages to Nigerian independents than they did at the beginning of the current era of asset divestments in 2009. ExxonMobil sold its entire shallow water subsidiary to Seplat; ENI sold all of its onshore assets to Oando; Shell sold its 18 onshore and shallow water Oil Mining Leases to Renaissance (which includes ND Western, Waltersmith, First E&P, Aradel and Petrolin). The result is that most Nigerian companies with any significant cash to spare have committed some hefty sum of money to investing in growing their reserves. Austin Avuru’s boutique investment firm, A  A Holdings, has control of over 8% of Seplat Energy, but  he thinks that a vast opportunity awaits Platform Petroleum and Pillar Oil (where he has substantial shares) in the next round of divestments.

In the second part of our C-Suite interview in his office, Avuru fields our questions, more from the perspective of a beneficial owner of some of the top performing assets operated by Nigerian independents and a keen, competitive investor in the Nigerian upstream landscape. Excerpts transcribed by Akpelu Paul Kelechi…

Africa Oil+Gas Report: How prepared is AA Holdings to take advantage of the remaining divestments by European and American oil majors from Nigeria?

Austin Avuru: Our investment in the oil and gas sector, as I said, is that we are not trying to be an operator of an oil and gas asset; we are an investor. We and Platform Petroleum (operator of Egbaoma field, 3,000Barrels of Oil Per Day (BOPD) and 30Million standard cubic feet per day (MMscf/d)) and Pillar Oil (operator of Umuseti field, 4,500BOPD), have also created a vehicle of Pillar and Platform and A.A. Holdings that can have a small stake in it where the organizations Pillar and Platform and the shareholders of Pillar and Platform can put investment equity funds into that vehicle and chase opportunities. We are doing it with some marginal fields that we are trying to develop. We are planning a road show sometime in 2024 to get us ready with the requisite partnerships that may be required and the funding that may be required; which means the backing of banks that understand this thing. We are not just sitting and waiting so that if those opportunities come around, we won’t even know what to do. If those opportunities fall on the table tomorrow, we will be very active participants and by we, I mean using that vehicle supported by Pillar and Platform as an investment vehicle; A.A. Holdings will just be an investor into that vehicle. We believe that if the right opportunities are on the table, we can create another credible independent and that is really our target.

Umutu Gas Processing Plant-‘Platform can do bigger things’

You’ve always had a low opinion of downstream oil and gas as a site of investment. Has it changed now? Will it change with the Compressed Natural Gas (CNG) about to take off in full as investment opportunity?

It is not a low opinion but it just happens that we are in the upstream side of business and we can’t do everything. We have a non-upstream subsidiary of Platform Petroleum that we created deliberately as a hedge against the vagaries of the upstream. When prices are yo-yoing and you might have a situation where you don’t have enough money to pay dividends, we thought we should have a safe haven. The Platform Petroleum downstream subsidiary has a couple of petrol stations and it is expanding from there. It also does real estate and logistics; those are the three areas it is focusing on. We are hoping that we can grow it to a point where it can make some predictable revenue away from the upstream. I don’t have a low opinion of downstream petroleum; just that what we do as Platform Petroleum and as A.A Holdings is such that we define our boundaries so that we do not do just about everything.

AOGR: What about CNG, you know it is about to take off.

In Nigeria, it is those people that do not understand a subject that discuss it the most. People are shouting CNG. At Platform Petroleum’s facility gate in Umutu, we dispense three million standard cubic feet per day (3MMscf/d) of natural gas to Power Gas and I do not know who produces more CNG than them. They take 3MMScf/d and compress it to CNG and distribute that to all their customers. We are supporting that and we as Platform Petroleum are expanding and you would remember that we bought back our LPG business from those we sold it to and we now have PNG that is owned 75% by the Platform – Newcross JV and the other 25% is owned by other investors. We have taken it almost from the doldrums into a profit-making business now. We are expanding that business and in the next two years we are going to build our own CNG station because it is just a compression station that has all those tubes.  We are going to CNG and we have been supporting a CNG plant that is located just on our gates and so, when people say CNG ….

“We can Bump Up CNG Supply: We do 30MMScf/d of gas and we give 3MMScf/d to Power Gas and the remaining 27MMscf/d we put into the pipe but if there is a demand for all of the 30MMScf/d to be compressed, of course we will do it instead of putting it into the pipe so we are ready to expand as the demand expands”.

You know we do LPG and between LPG and excess propane, we do 50 tonnes a day without people knowing and that is part of our PNG and gas business. Our midstream business in terms of gas is strong. From LPG to CNG and lean gas we put into the pipe and supply 27MMscf/d into the OB3 pipeline every day and of course, our oil and condensate. Platform Petroleum has been successful in monetizing the resources they have but the only problem they have now is resource availability. If you give Platform Petroleum a block today, they know what to do with it end-to-end and not just with the oil. They know what to do with the oil, LPG, CNG, Lean gas.

Numbers ranging from 23MMscf/d to as high as 600MMscf/d have been cited as the likely volume of CNG that will be demanded when the market takes off. What is your opinion, as a geoscientist a Petroleum engineer and businessman?

Gas is driven by the demand and not by the production so today, the CNG market remains light to medium industry. So instead of using gasoline the government wants to encourage CNG. The midstream business is profitable because we give them gas at $2.30 and they put it in those bottles and go and sell to their customers at $7. The difference is in the logistics because they have to pass through all the bad roads; there is no federal road that you can drive 30kilometres on good road so you can imagine having all those tubes of CNG on those trucks and taking them from Umutu to Agbara; that takes a toll. So you think it is a wide difference of $4 but 80% of that goes into logistics before you talk about their margins. Now, how fast will that grow into cars? It seems that everybody believes gasoline is too expensive so they want to go to CNG. It is not going to be like that because it is also a dollar based resource. I just told you that it is sold at $7 per thousand and by the time you start filling your car with CNG at that price, I haven’t really run the numbers but I don’t know if it is necessarily cheaper than petrol if it is made available prudently. I don’t know if it is cheaper but the fact that people are shouting that petrol is expensive so they should move to CNG so that they won’t pay as much, that is not the issue. People in other environs are going to CNG because it is cleaner and not because it is cheaper. I think light to medium industries will still require CNG just like the domestics and other areas in cooking will still require LPG. We, using the Platform Petroleum vehicle are ready to play in that market; we are already leading in that market not on a small scale. We are ready to expand as the demand expands. We are ready to expand to meet the demand and I mean, we do 30MMScf/d of gas and we give 3MMScf/d to Power Gas and the remaining 27MMscf/d we put into the pipe but if there is a demand for all of the 30MMScf/d to be compressed, of course we will do it instead of putting it into the pipe so we are ready to expand as the demand expands.

AAHoldings put $3Million in Decklar Resources, a Canadian company controlled by Wade Cherwaycko, who also founded Mart Resources. That money is probably wiped out. Mr Cherwayko  was until two months ago, trucking crude to modular refineries as he couldn’t still inject into Trans Niger Pipeline (TNP) because it kept being ruptured by vandals. Trucking crude is subpar, Are you going to exit that investment?

We can’t even exit now even if we wanted to. We entered almost at the bottom and that is why we are ok. I mean, we entered at about 30 cents per share and that went up to about $1.50 before it crashed back to the bottom not because they didn’t know what they were doing but because they completed all their production programme but could not evacuate it because the TNP was down. Nobody went into developing those fields so that they will be trucking 500 barrels of oil per day and that is why it is not moving the needle. But I think that now that evacuation problems are solved one way or the other, they will pick up again. We are trying to support them in one of the marginal fields they have an interest in, to see how they can put that into production. Right now in our balance sheet, that is a loss making investment but we think it can pick up later and if it doesn’t, so be it, but we are not thinking of exiting that investment but rather, we are thinking of what we can do to support them to pick up again.

What is the timeframe that you are looking at?

If the TNP is working today and they can put their 2,000 barrels a day into the TNP, it makes almost all the difference for them. Then in the Oza field, they can drill another well and make it 6,000 barrels and it makes all the difference.

Five new marginal field companies have moved rigs to locations in the last five months. All of these companies are rank outsiders. None of the two new marginal field investments in which your vehicle: AA Holdings/Pillar Oil/Platform Petroleum is involved have got up to speed in field development. Are you regretting this investment?

Pillar did not get a new marginal field so they are not developing any new marginal field. In fact, they were doing something bigger but they weren’t as successful. They actually took a whole block as technical partners and that’s the NigDel acreage.

Platform was involved in three marginal fields but they didn’t win any so they had to go to the black market and in this three marginal fields, I can tell you that they are dredging which means location preparation. All of them are not easy marginal fields; they are all in the swamp. One of them is in the shallow water, at the mouth of the Benin River in the Benin Estuary. So, the Benin Estuary, Kuri field and the Helly Creek field are the new fields Platform is currently working on. Platform is the operator on behalf of the partners in each of those three and they are working on them actively.

They were expected to be spudding between December 2023 and Q1 2024 and Kuri was the first one that they were meant to spud. Then they would drill one well and re-enter one in Helly Creek. In Benin Estuary, they will first re-enter the existing one before they drill another one so I can tell you that work is on going. We have never competed with other companies but we compete with our own work programme. We are following our work programme diligently and by God’s grace we are going to bring them into production. There is Emuoha (a  marginal field in eastern Niger Delta) that we are discussing with Deckler on how we can support them to work that field and that is a much easier one because it is onshore. Once we put all the partnership issues in place, that’s easy to drill a well and re-enter a well. If you had an onshore field, you would know what it means to deal with the swamps and then you dredge; you first need to get a rig and then deal with all these community issues. The rig that we are going to use in Helly Creek is coming from the United States  and that is one of the things that I have been saying about local content. It is much easier to beat our chest about local content but in the execution, our execution capacity right now has fallen to the lowest level. If the activity level in this industry has to pick up to that point where you can close that gap in production level, you won’t even find the rig even if all the money is on the table; that is where we are right now in terms of execution capacity.

Depthwize was the most reliable swamp rig vendor and they only had two swamp rigs and now, one has flipped over. If you are looking for a swamp rig you can’t really find it and if you are looking for a land rig, you still can’t really find it and that is why you see that the Indians brought all their swamp rigs from their country to work for them. Execution capacity is very low right now in the industry. But we are not lagging behind in execution of the marginal fields and in our own case, we didn’t win any of them. You first have to go through one and a half year of farming into somebody else’s marginal field and sort out all those other issues before you start raising the money to do the job. If we are about one year behind those ones, you can understand. We went to the black market to get those fields.

What is Platform Petroleum’s percentage equity in Kuri, Helly Creek and Benin Estuary fields?

In the Benin Estuary, we actually farmed into another party’s 40% stake and by the time you look at our economic interest there, it is probably about 20%. Our equity interest in Helly Creek is about 40% but because we are carrying everybody else, our economic interest will be about 80% until payout. Our equity interest in Kuri is 50% and economic interest would be about 80% until payout. So that’s the way it is with all of them.

If Chappal wins the bd for TOTAL’s 10% in SPDC Joint Venture, A.A. Holdings will not be in the game. What are you going to do?

My honest answer to that is that I do not know. There are issues about our participation in an equity interest in Chappal and in the fullness of time, those issues will have to be resolved one way or another. In the fullness of time the issues of our participation and equity interest in Chappal will be resolved one way or the other.

Are you more comfortable to play as Platform/Pillar?

Platform has always been there before we moved to Seplat. The only difference is that we moved to Seplat and had a 24% stake in Seplat just the same way as Aradel has 42% stake in ND-Western. The difference is that we took it to the market and it became public and then we were diluted as we went to the market and so on. That’s our story with Seplat and that is done and gone and that is why we look at Seplat as something that we have accomplished. We don’t chew our nails over Seplat and we don’t beat our chest over Seplat because we have finished it. When I moved in to try and do Chappal, people accused me of competing with Seplat but I say Seplat is just like any other operator. It just happens that we were involved in its formation and we could compete with any other operator to create another independent and I didn’t see anything that was wrong with it, provided I made the necessary disclosure which was what I did. Now, since I have retired from Seplat, it is time to ask what’s next for Platform? Is it just going to remain a marginal field producer? We think that, for the amount of work that they have done and the amount of diligence that they have shown, I think it is time to then package them and move to the next level of being a proper independent if they can. In the process, we as A.A. Holdings and Platform, invested in Pillar. So Platform has 20% of Pillar and A. A. Holdings has 20% of Pillar and in trying to move Platform to the next level, it only makes sense that there is a drag along with Pillar because Pillar is like an associate company. And Pillar is also doing its own things and doing them quite efficiently. If we combine those operating capabilities and experiences and find the funding to put them, and there are assets available, we think there is room in the combination of those two companies to grow them into a proper independent. While all of that is going on and as I said, in the fullness of time, our involvement in Chappal will be resolved one way or the other.

We don’t have too much time and I am not like Lai (Dr. Layiwola Fatona, founding CEO of Aradel) who is still as active, in his mid 70s, as he was when he was in his 40s; I believe that by 70 we will start slowing down and so, if we need to build, we need to build it in the next five years. There is room to build a few more independents. Today, if there is an asset on the table and you are building, the real issue is where are the buyers? If Seplat concludes its transaction today, they are not likely to jump in to bid for any assets tomorrow. If ND-Western concludes their own, they are not likely to jump in on any assets tomorrow. If Chappal, the upcoming one concludes one or two of the one that they are doing, it will also be difficult for them to jump in on any new asset.

That’s true, if they conclude TOTAL …

in the TOTAL deal, it came down to Platform and Chappal. In the Shell deal it came to NDWestern and Heirs Holdings and the ND Western led consortium won. Those are not the most competitive bids; if you don’t have five or six strong companies competing to win, something is wrong. As you are eliminating the successful ones, the field is getting narrower and narrower in terms of those that who have the capacity to actually come after the assets.

“We are planning a road show sometime in 2024 to ensure readiness with the requisite partnerships that may be required and the funding that may be required; which means the backing of banks that understand this thing”.

Dangote has always featured in Divestments but he never quite gets anything

Dangote is busy. Let me tell you: for someone who couldn’t even find time to pay attention to his own corporate headquarters: the building on Kingsway Road ( in Ikoyi, Lagos, Nigeria), you should know that he is busy. He has to get that refinery working.

As for Heirs Holdings, founded by Tony Elumelu, I think they have the appetite but the company was slowed down because of the evacuation problem; they borrowed money to get that asset and took production to a fairly good level that it should be coasting but they could not evacuate. They were held back for about six to seven months but I think they are back now.

This article has been published in the October 2023 edition of the monthly Africa Oil+ Gas Report. It is being published here for public service purposes.

 

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1 comment

  1. theeditor says:

    What about the issue of too many CEOs (or CFO COO CTO etc) per barrel across the Nigerian independents?

    There are too many executives per barrel driving jeeps at these low production volumes. Why isn’t the government and the ex Shell clique looking at putting aside their egos and agreeing that there needs to be consolidation between so many of these small players?

    IOCs became what they are through consolidation. Nigerian independents need to put egos aside and do similar consolidation

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