As part of our C-Suite Series of interviews with active leaders in Africa’s energy space, Africa Oil+Gas Report engaged WOLE OGUNSANYA, Geoplex’s founder and Chief Executive, in a long conversation. The company has taken substantial interest in a marginal field offshore Nigeria. That’s where the discussion began.
Below, Paul Kelechi Akpelu summarises the chat:
Now that you have acquired equity interest in a marginal oil field, tell us about your journey as an E&P independent; your proposition as an oilfield operator…
We have interest in one marginal oil field, which is the Indibe field. We did not go forward with the second field that we had interest in, because of the result of our evaluation. We were awarded that second field (during the bid round) but the Net Present Value (NPV) and the (development) requirements of that field didn’t look very good. So, we replied back to the Nigerian Upstream Regulatory Commission (NUPRC), to let them understand that it was too much of a burden for a small company like us to take on. But with Indibe, yes, we are part owners of Indibe because we farmed into it and we Have finished drawing up our field development programme. We actually had to take on Baker Hughes to do all these studies for us to make sure that if we invest more in this field, what we think is there, what the prognosis says will make economic sense. So, we’re into that and most likely sometimes in mid to late 2023 we will be drilling the Indibe field.
They ran double completion inside a seven-inch pipe with gas lift… and the whole thing jammed up. The well was finished. But we cut those tubings eleven times and picked them out like spaghetti to salvage that well. This is how passionate we are because this is a Nigerian thing
When should we expect First Oil?
We have been engaging with the NUPRC , reviewing all of the regulations in place that we have to meet. Part of it requires that you have your facility ready and we are offshore. This asset is in OML 67 which is owned by ExxonMobil. With the regulations that we have and the meetings that we have had with the NUPRC, they are going to allow us do what is called Extended Well Testing. It allows you test the well over a number of days and the volume, temperature, and pressure information that you gather will be used to determine or predict the production that you would have over say five to ten years. And of course, when you are doing that, you can keep and monetise the production you had during the extended well test period. That is the way we are intending to get to First Oil hopefully in 2023.
What are the maximum allowable days you could do an extended well test?
The law allows 90 days for extended well test and a one-time renewal of another 90 days.
In the past, some companies have essentially used extended well tests to produce and over the course of say two years, they keep saying they are doing extended well test.
NUPRC is focused to help us, including getting support from the multinational company that owns the OML where these fields are to deliver value. If you put in $20Million to drill a well and complete it; if you are efficient, your ability to flow that well even at a 1,000 BOPD for 90 days helps everybody. It helps you to generate some revenue and it helps you to raise finance because the banks now understand that the oil is there and that the well is completed. If you are lucky to get a renewal, after another 90 days you already have certain level of cash flow and you shut in that well and come back in another six months with the permanent facility, it makes sense. That is what the government wants, for us to get more volumes out of the ground.
There is a lot of gas in Indibe. What are you going to do with that? For a new company like yours, gas could be a bit of a challenge.
We are aware of that and we are working very closely with ExxonMobil on how to handle the gas production. There is also the Ibom Power opportunity in [that sector] and a number of people that will offtake gas in Eked. We are hoping we will offtake with ExxonMobil because it is in their field. If we are able to put the infrastructure in place and get NGL [to offtake], we could consider that for a good price as far monetising is concerned. All that gas monetisation issues we have to [solve] otherwise the project will not be viable.
Geoplex has an interest in the FPSO business and you have equity shareholding with Yinson Holding. Is Yinson Operations & Production West Africa Ltd(YOPWAL)- looking at any opportunities outside Nigeria at the moment?
Yes, we are the partner for Yinson in the country at the moment and there’s a number of FPSOs that we operate. The uptime of our FPSOs, how many days our FPSO was running without any shut down is probably the highest in the world. The FPSO partnership that we’re running with Yinson is strictly in Nigeria. Geoplex is the majority owner of the local company [but] there are other opportunities that they have within sub-Sahara Africa that could be an advantage to Geoplex and we could partake in future.
What we have with YOPWAL is strictly a relationship for Nigeria and of course in Nigeria, we’re looking for further opportunities.
Will YOPWAL provide the FPSO for Amni’s Tubu Field?
I am not aware of that. What I can tell you without mentioning any names is that we’re looking at another client that has solicited us to provide FPSO for them based on our record that they are aware of. It is important that that end of the spectrum is handled at the highest competency level and that is what we have been able to do with Yinson.
The Nigerian National Content Development & Monitoring Board (NCDMB) is worried that local companies like yours do not invest in research and development. What’s your take sir?
In Geoplex, we do a number of research, local simulations and we document them. This is deliberate because we have the local know how that helps us in some of our services to deliver better than the multinationals and that’s where we actually are today. There are some services that Geoplex can do better in Nigeria than any multinational company.
If you don’t build capacity, if you don’t invest in equipment, if you don’t train people, if you don’t develop, you cannot do research. There would be nothing for you to research because for you to do research, you must have certain level of know-how and what you’re doing in research is expanding that know-how in a scientific manner. It is important for indigenous companies to build our capacity to that level that we can do a lot of research within the country. In Geoplex, we’re already doing a few things in our own way. We have a test well in Port Harcourt where we simulate operations and have records that help us when we’re going to the well site to deliver those services as good as anybody in the world.
Why did you decide on acquiring a fleet of rigs, and becoming a drilling rig investor?
So that we derive value across the value chain of oil and gas services in Nigeria. It’s not the first time we will expand our portfolio of services, drilling rig is just one of them. We started as a monolithic service company providing electric wireline services, [then] we rolled into many other services: MWD, LWD, coil tubing, cementing, slake line, surface well testing and even completion. So the rigs are just one of the other services [and] we have capacity to deliver turnkey projects on land.
One of the clients for whom we delivered turnkey projects, made a presentation at the conference of the Nigerian Association of Petroleum Explorationists (NAPE) and declared that turnkey service is the path that Nigeria’s small field operators should be traveling because it saves them cost, it is more efficient and it avoids a long supply chain process. This client had raised production to more than two times of what they previously had and the job we did for them, we did within budget. If an E&P company chooses to set up a supply chain to drill one well [on its own], it supply chain department will award 33 contracts. That’s how many contracts you need to deliver that well. So you can imagine the efficiency or lack of in that system.
We are saying look, we have the rig, we have the services and here’s our international partner. We deliver this core value at double digits lower percentage than you will if you do it yourself.
We delivered in joint venture with one of our multinational partners but Geoplex rigs drilled the wells and Geoplex equipment did some of the services such as coiled tubing, cementing and so on. We supplied all the long lead items like the pipes, the well head and installed all of that. Our partner, the international company, also carried out some of those services to deliver those wells. So, it was a turnkey JV project that we delivered.
Who are your international partners?
We work with all the international companies in Nigeria. In the oil and gas service space, there are some technologies, some know-how that some indigenous companies have not attained, including us. The local content Act of 2010, is to ensure that we increase capacity, [but] it will take time to be there, 100 percent.
What’s your general idea of the rate of return on your investment?
The rig business is cyclical. When the price of oil is good, most oil companies in Nigeria would want to drill and get more oil but in other countries, it is really done the other way around; they drill when the price of oil is cheap because the services will be cheap from the service companies. There is nothing wrong when the prices are $80 or $90 and I drill a few more wells to get more oil because even if I’m paying a little bit more for the services, I’m also selling my oil at a reasonable price. The only thing is that because the rigs are more expensive in terms of servicing and maintenance, when the upside is there, you have to take advantage of it. When the downside comes, that depends on how you prepare yourself for that.
In Geoplex, we have learnt to take advantage of the upside and preserve ourselves on the other side. When our rig is working, the business is very profitable. Right now, we have a number of contracts that these rigs are already lined up for, apart from the work that we’re just completing.
When you deploy one of your rigs to Asa field, will it be a multi-well campaign, and how many wells are you looking at drilling and what is the time frame?
On that one, since we’ve not heard anything from the client. [But on another], we are mobilizing our 3,000-horsepower rig to Shell. Preparing a rig can take 2-3 months. The Shell contract is a contract that we have and we have signed off on. The 3,000-horsepower rig can drill a very extended well, meaning we can drill both horizontal wells and extended wells with it. When you have the spec of the rig, 1,500hp, 2,000hp or 3,000hp, it just tells you how much they can pull and the deeper you go the more you need to pull that pipe back. So, With Shell, we got this two years contract plus a possibility of one year extension and they needed that rig because they’re going for deeper wells. There are only two of those rigs in the country and we own one of them.
Baker Hughes is known, for example, for making tools for the industry. Do you envisage several Nigerian companies manufacturing a range of oilfield tools?
That’s happening today. There are actually companies that are already doing that when it comes to mechanical equipment. Even in Geoplex, we design stuff, we design crossovers and we go to machine shops in Nigeria and make them. On other high-level technology, there is not a lot going on in Nigeria yet but it is not impossible. What will make them happen [is] that you have to have a certain know how and that you must developed to a certain level, then with a little bit of research, you can raise the bar. Even Baker or Schlumberger don’t build those tools, they design them.
The beauty of the world supply chain systems is, when you do your designs, there are patents and there are agreements so that whoever you are outsourcing your design components to or the equipment that you are building are bound by that agreement. At Geoplex, we are partnering with a UAE company for some specific downhole tools, to integrate some of our equipment so that instead of having a 40ft length of equipment, we can reduce that to 10ft. In oil and gas industry, the more things you put in the well the more risk you are exposing that well to by introducing lots of junk in it all of that.
Which companies are utilising GEOPLEX’s subsurface service the most?
We’re working for everybody. We work a lot for Seplat, NDEP, (as I speak with you our team are there helping them complete a well that they are drilling right now), Heirs Holdings. We work for Waltersmith and we are preparing to support them with some remedial work that they have with their well and we also work for Midwestern. For the multinationals, as I am speaking with you, we have more than four crews in Chevron right now, with Shell, we also have people out there working and we are preparing our rigs for them. We recently finished the work we have with ExxonMobil but we are still working for TOTALEnergies.
If you acquire equipment, it ties down funds when nothing is happening, but you say there is a need to have that equipment yourself
Halliburton, Baker Hughes and Schlumberger have been doing this for 95 years now. The way they have succeeded is to develop and own equipment. Of course, it is not easy to own equipment and have that equipment not put to use all the time in delivering those services for which they were bought. To compound the issue, you borrowed money to buy them and if they don’t work you don’t make the money and you need to service that debt. But if you plan and structure yourself properly, there is no other way to survive in this industry without owning equipment. The local content law was established for us to build capacity and have capacity within country to produce our oil and gas. If you don’t have equipment, you are not building capacity.
As a service provider, who your worst offenders are in terms of payments and how frustrating is it before you get your money?
People are owing us quite a lot and it is very painful because when you have debts that run into tens of millions of dollars, it doesn’t matter how strong you are because even the multinational partners that we work with, when we are not paying, they too are feeling the pain. We are always in conversation with them on how we can get the end client to pay us. We are hopeful that the PIA will help solve that though.
You had a joint bid with Baker Hughes in Angola recently, how did it go?
They were the ones that bid and asked us to support them. We are in conversation with them right now on how we can mobilise our equipment and personnel from Nigeria to go and support those operations.
How is your interest in bitumen going and what are the challenges with that?
We were invited for the bitumen opportunity, it wasn’t something that we had in our schedule. We are working with one or two state governments to see how we can support them to exploit the bitumen that they have in their states. We are at the bid round stage right now and this exercise is conducted by the Ministry of Mines and Solid Minerals Development.
This country imports about $300Million worth of bitumen every year. To exploit bitumen, you have to drill. Because it is on land and Geoplex owns land rigs, we have a major capacity to exploit bitumen. The other capacities that would be required would likely include a lot of surface processing and we have a foreign partner that can support us. So, it is for purely economic reasons and purely national reasons that we think, if we can invest in bitumen exploitation in Nigeria and make money out of it and at the same time reduce the money, we spend to import that material into the country.
Are you working with the power sector too?
We are working with the Transmission Company of Nigeria (TCN) to support some of the electricity distribution companies to upgrade their distribution capacity. This will involve building sub-stations and we already have the contract to do that and we are involved in working with them right now to see how we can place orders for some of the materials. We think we can leverage our engineering know how, our discipline, and our approach to business to make this a success.
Are you working with TCN as an enabler to them?
No as a contractor. There are three distribution companies that we are going to work with to help upgrade their distribution network.
Is that part of the Presidential Power Initiative, aka Siemens project?
No, this is a completely different arrangement that TCN made. Nigeria’s installed capacity is about 12,000MW but the production capacity is no more than 6-7,000MW because of gas availability issue. Also, within that production capacity, we could barely maintain 4,000MW. Part of the problem is caused by the distribution network because it is not robust enough to [deliver] what we are producing. As the generating companies are ramping up production, they are not able to have it distributed through the national grid and down to the end users through the sub-stations. So TCN designed a programme with the CBN and we are one of the lucky ones to win that contract.
There’s talk that Geoplex plans natural gas supply to some projects in Southwest Nigeria
We are not supplying gas. We have a growing interest in embedded power. The power sector regulations allow you to have embedded power, which means that the distribution companies [discos] can by themselves or in partnership with others, generate power within their disco network and I think the maximum power they can generate as embedded power is 10,000MW. If the national grid is not able to supply you enough power and you have your own embedded power, you would need less from the national grid. It is all about having more because we do not have enough power as a nation. Geoplex is interested in embedded power with one of the discos. We have done a lot of engineering work; feasibility studies and we have even identified the kind of turbines that we will need and the capacity that we are going to build within this disco network. We are in talks right now with the disco and we are going to site it along one of the gas routes that we have across the country.
We are working on an agreement with the Nigerian Gas Company to tap into their gas supply area in the Southwest of the country. The power that some of these big factories are using is enough to power half of Victoria Island, (an upmarket, mix residential and office suburb of Lagos). So, if I have property in VI and there is a gas pipeline in the vicinity and I buy a piece of land along that route and secure it, go to the water front and put my micro turbine in there and hook it up to the network, VI has constant power.
Your 13 years at Schlumberger is relatively a short time. What was the trigger for you to leave?
When I joined Schlumberger, I think we were 16 in our training school and probably half didn’t make that training school and before I left, we were probably just two left in the company after 12 years. The job was extremely difficult and the attrition rate was high. Some of us had the attitude that we were going to do our job to the best of our abilities and we did. But we also thought, if they are going to ask us to go, then we were prepared to go. And of course, there was also some rule changes when I was 12 years in the company which might affect your pension. If you left at a certain time, you got a lot of money. if you left at a certain window, you didn’t get pension at all until you are 50 or 55 years old.
NNPC had formed a local content policy, the NOGIC Act of 2010. That was visionary for the national interest and the industry interest to have Nigerians carrying out these services. I got aware of it and said well, if they are going to give me the job, I am already doing it here for Schlumberger. I already manage people and I work in different countries and I have trained a lot of people. So, if the Nigerian government decided to give me this job, I was very confident that I would deliver on it. That was actually the catalyst for me to leave.
Where do you see the oil industry in the future?
Foreign subsurface service operators charge that companies like yours are pushing them out of the market.
When we were colonised by the British, they came with their cars but Nigerians did not know how to drive. So, the Britons drove the cars. Now imagine if we still don’t know how to drive today. There is going to be a time when those multinationals will not want to work in this country and that time is not going to be decided in one day; it is going to be transitioned. That is the whole purpose of the Local Content policy, to develop capacity. So, what I see is a value chain plain where we are creating value for ourselves as Nigerians and we are not pushing any multinationals out. There is a niche, there is a value space for these multinational service companies to be part of this industry and we are doing it with our partners and they are partnering more with us because they have seen that working with us also gives them value that is better than they working by themselves.
You don’t think that Schlumberger would be saying:” these guys are trying to take our job”s?
We think we can leverage our engineering know how, our discipline, and our approach to business-in the oil industry to make a success of our foray into electricity distribution sector
We work with Schlumberger and everybody else. In fact, our first partnership in the industry was with Schlumberger in electric wireline. The first contract we had with Shell was with Baker but since then we have always worked with Schlumberger on electric wireline.
In the oil and gas space, because of who we are and because of our integrity, many of them want to work with us. We partnered with Halliburton and they sold us their bulk cement plant in Escravos. Geoplex is the only Nigerian company that can do cement job in Escravos today because of the capacity that we have built. Halliburton is still partnering with us and their senior vice president has come and we have put an agreement in place. They see that there is an interest to work with Geoplex. So, it is not just with Baker, Schlumberger or Halliburton, we are also working with Weatherford in some areas. The whole purpose is that you have to ensure that your partner has a space in the value chain and you have to have the integrity that is required and the due diligence that the multinational companies are very strong about because of the laws in their home countries that cannot be violated.