By Austin Avuru
On July 1, 2002, I moved into a modest 3-room office on the 3rd Floor of Bankers’ House in Victoria Island, as Managing Director/CEO of Platform Petroleum Limited. The space was availed to us by one of our shareholders, Wilbahi Limited who was the lessee of the entire floor. As staff, I only had my secretary, whom I hired to start work on that day and my driver who moved with me from Allied Energy Resources Limited. It was in this office that we compiled the two bid packages that we submitted to the Department of Petroleum Resources (DPR), the regulatory agency. I still remember that evening on the closing date for submission. We had just bound the two submissions and I had just picked them up to rush off to DPR for submission when my secretary and driver stopped me and insisted that we must pray over the documents. I am Catholic and they are both Pentecostal Christians. They took turns to fire those typical Pentecostal prayers over our submissions with our three hands placed on them. Well, the rest as they say is now history.
Having won the Asuokpu/Umutu field, it was now time to set up a proper structure and start planning how to develop the field and build a company in the process. The starting point was fund-raising. Shareholders had paid up a total of ₦25,000,000.00 (Twenty-five Million Naira) for 25Million shares at the point of winning the field. Twenty-five Million shares had, therefore, been allotted in line with actual subscriptions paid. After winning the bid, the share price could no longer be ₦1.0. The first Rights Issue, intended to raise money to pay the prescribed signature bonus of $150,000 was, therefore, priced at ₦8.33 per share. 3.5 Million shares were offered (in the proportion of individual shareholdings), raising our paid-up shares, post issue to 28,500,000 shares. At the close of the offer period, eight subscribers paid for their rights and picked up additional shares from the other eight who did not exercise their rights. We realized ₦29,155,000 which was $208,245.50. Exchange rate was ₦140/$. We paid our signature bonus, secured the field and still had some money in the bank to keep the office running. At the end of this rights issue, the shareholding structure changed slightly, reflecting the levels of subscription.
Now, it was time to raise the money to develop the field. We decided to bring in a financial Partner/Investor to whom we were prepared to cede 40% undivided interest in the field. I prepared a 36-page Information Memorandum, a comprehensive marketing document which detailed the field resource potentials, planned development strategy, budgets, activity schedule to first oil, projected production profile and field economic evaluation. Details of the company structure, management team and board were also included. By this time (2004), Dr. E. M. Daukoru had been appointed, Petroleum Minister and so had to leave the board.
I pitched several potential funding partners, including the Delta State Government to acquire the 40% stake of the field on offer. In the end, Newcross Petroleum Limited, a company promoted by Dr. Festus Fadeyi, showed interest. We negotiated and reached agreement to assign a 40% undivided interest in the Asuokpu/Umutu field to Newcross Petroleum for a farm-in fee of $800,000.
Looking back several years later, I realized that my background and personal characteristics made me a very poor negotiator. I think that every negotiator should possess a certain minimum level of greed (while being reasonable and realistic) to achieve the best negotiated results. But greed is one quality I lack! Added to my frugal background as a paid worker who was always satisfied with the salary I earned, I was really excited at the prospects of Platform Petroleum earning a farm -in fee of $800,000! For me, however, my focus was simply having my problem solved. I was looking for a financial partner and I got one, with almost a million dollars to our credit! This solution driven modest approach to negotiations would become a trait of my entire corporate experience.
Anyway, I dutifully saved up the money as it would become the base of our working capital. All the contributions by shareholders, through subscriptions and rights issues up to this point, amounted to about $850,000. From this point on, I decided that I would not task shareholders with any further equity contributions. It was time to get creative and raise the required funds to develop the field and build our company.
Dr. Fadeyi was, at the time also the Chairman/CEO of Pan Ocean Oil Company, an old well-established company producing over 10,000 barrels of oil per day. If we allowed Newcross, they had the resources to fund our operations 100% and even fund our overhead if we chose that route. But then, we would lose our right of operatorship. We could not stay in control and use this opportunity to build capacity as a company if we handed over operatorship to our rich partner. This was, therefore, out of the question. We had to raise our own money and be able to pay our 60% cash call as we embarked on the field development.
One option was to raise about $3 – 4Million through another rights issue. But I thought I had tasked our shareholders enough. More than half of our shareholders were modest retirees, who were my former bosses and/or colleagues living on pension. If I did a rights issue of this magnitude, more than 60% of the Company would be cornered by the 3 or 4 shareholders who had the money and the rest of us would be at their mercy. I was not going to allow this to happen. I sought help from an experienced financial consultant who came up with the option of Platform selling investment notes to her shareholders. We designed a scheme to sell one hundred investment notes at $35,000 per note. Shareholders could introduce their friends to join them and invest. Seven shareholders took up a total of 77 notes while friends invited by two shareholders took up the remaining 23. This was how we raised $3.5Million which, added to the $800,000 farm-in fee and about $200,000 unspent balance from shareholders contributions, gave us about $4.5Million fire power and saved us from selling our operatorship birthright. It also preserved the shareholdings of the other nine Platform shareholders which would have been sharply diluted.
With initial funding sorted out, attention shifted to setting up the company and getting ready to work the asset. We built a 3-level Organization structure, with lean staffing but flexibility to grow as activities picked up.
- Head Office: At the Lagos head office, I hired two deputies, one to supervise all technical/operational activities (Technical Manager) and the other to handle all support services (Finance, Admin, HR as Manager Finance and Admin). We subsequently hired two young Petroleum Engineers and two young geologists to support the Technical Manager and a finance Supervisor and Admin/HR Supervisor to support the Manager, Finance/Admin.
- I brought in a very experienced Engineer (an Engineering PhD holder with over twenty-five years industry experience) as our Technical consultant. He would pull in other specialist consultants (drilling, completions, production etc) as needs arose and work with our in-house technical team. This did two things for us: utilise best-in-class expertise to execute our work programme and train/develop our in-house team who would ultimately take full ownership of the operations.
- We set up a base office, to be headed by an experienced base Manager. In doing so, I deliberately chose to locate the base office within our host community. With the key building blocks and governance structure now in place it was time to develop the Asuokpu/Umutu Marginal Field. From our detailed evaluation of the field, two of the existing five wells were usable for production purposes. The combined technical team prepared a well re-entry, testing and completion programme, including the full budget, activity schedule and the composite list of possible service providers. We then contracted a 1,500 HP land drilling rig from DWC Limited on a day rate charter of $14,000 per day. We also engaged the services of drilling/completions supervisor on a day rate contract to manage the operations at the rig site. Once we were ready to mobilize the rig to site, I personally led a team of my key staff, (Technical Manager, Manager Finance/Admin and Base Manager) to initiate discussions with community leaders to ensure hitch-free rig operations.
This was one of the most difficult assignments I had to undertake. The Niger Delta was at the peak of its agitations and there was a total lack of trust between communities and any operating company. Worse still, the traditional governance structure in these communities (where traditional rulers and community leaders would usually hold sway) had been hijacked by militant youths, most of them fully armed. We were summoned to several rowdy rounds of negotiation meetings in each of the four communities that constituted our hosts. In each case, the youth leaders held sway, even though the meeting could be holding at the residence of the community leader or traditional ruler. There were threats, shouts, walk-outs, re-schedules and eventually, some form of compromise. The most funny of the requests I had to deal with was the issue of ghost workers. We had to negotiate a day rate and an agreed number of job slots for workers that would not physically show up. Such payments were to be shared by the youths. We also had to negotiate a “pass” (a toll fee) for every truck that brought in supplies/equipment to the drilling location. Even, after reaching agreement on all the items, we were still shut down for a few days when the rig was on location, usually to force us to accommodate some new, made-up demands by the youths. The youths were king!
In some cases, I was kept waiting for hours at the meeting venue because the youth leader was late in arriving. Most of these were antics to drive up their bargaining power, especially when the rig was on location and various day rates were counting.
In the end, we got the job done within budget. We tested and completed four oil-bearing intervals in two wells. With test results, which showed a combined flow rate of over 4,000 barrels per day of light oil, we were critically close to where we could borrow to supplement the equity funds contributed by both partners.
Next hurdle was to design and build a flowstation. I flew out to Houston to close out two contracts, one for a 10,000BOPD flowstation with three stage separation and the other for a Lease Activated Custody Transfer (LACT) Unit (also to a capacity of 10,000BOPD.) We made advance payments for both vendors to start the design and equipment manufacture. Back home, we awarded the civil contract for the preparation of the flowstation location, including the construction of a modest field accommodation within the flowstation premises for night duty field staff.
The most daunting task yet was the design and construction of the evacuation pipeline. I remember standing at the flowstation site and looking East in the direction of ENI’s Kwale/Okpai flowstation where our pipeline would run to. The thought of clearing a 15-metre pathway through the thick forest I was looking at, over a distance of 48km was frightening to me! It was at that point I knew that God created man to accomplish whatever he can dream up. After that experience, I never considered any project too big to take on.
Excerpted from ‘My Entrepreneurship Journey’, a Memoir by Austin Avuru, founding CEO, Seplat Energy. The book is due to be published in June 2022 by Radi8 Publishers.