A resilient market position in Nigeria

Nigeria

Roger Thompson Brown, CEO of Seplat Energy, talks to The Energy Year about how the company has built its resilient market position, the latest from its projects across the value chain, and the critical role of natural gas in ensuring a reliable and affordable energy supply in Nigeria. Seplat Energy is an independent indigenous energy company.

This interview is featured in The Energy Nigeria 2021.

What strategic moves have you made to build your resilient market position?
Our business model has shown itself to be resilient throughout the years. We have built our business on a solid base with a diversified portfolio of onshore oil and gas ventures. There are an array of factors triggering our strong performance: firstly, Nigeria has an extremely rich subsurface; secondly, our assets are very prospective in both oil and gas opportunities; and thirdly, our unit production opex cost is below USD 10 per boe, which is one of the targets for the national oil company, NNPC. We are among the most competitive operators in the country.
More recently, we have been ramping up production at our Eastern Assets, which we acquired in 2015 from Chevron. We have made significant investments in the east in drilling wells and infrastructure and also building a new 300 mcf [8.5 mcm] per day gas plant – the ANOH Gas Processing Company (ANOH) – which we are executing as an incorporated joint venture (IJV) which the government has a 50% stake in.
The ANOH project will process gas capable of producing around 1.2 GW of cheaper, more efficient and less carbon-intensive electricity as well as providing LPG to the eastern axis, offering a more efficient alternative to cooking with firewood, thereby reducing deforestation.
In Q4 2019, we acquired Eland Oil & Gas, which had an interest in OML 40, which is close to our Western Assets. We have drilled a series of production wells in OML 40 this year and we will see an uptick in production. We also plan to spud an exploration well – Sibiri – later this year or early in Q1 2022.
These strategic investments have allowed us to weather the storm. It’s all about early-stage investments. We’re not drilling complex wells, and therefore we’re able to do short-cycle planning. Even when the barrel stood at USD 10, we didn’t stop operations – we continued to produce. At the same time, we decided to cut back our capex programme in Q2 2020 and worked closely with our government partners. That allowed us to start 2021 in very good shape. As a result, we’ve continued to be profitable into Q1 of 2021 and with current oil prices hovering between USD 70-75, our business model is proving to be a success.

How is Seplat Energy aiming to increase its production in 2021?
The production range we are looking to achieve by the end of 2021 is 48,000 boepd-55,000 boepd. Getting to the upper edge of that range is all about how quickly we can bring new wells on stream. Realistically, that is going to be in the back end of the year and we expect to hit higher production figures in 2022.
In the second half of this year, we are spudding three dual-string wells in OML 40. These are in swamp terrain and are prolific, producing over 3,500 bopd each. Even if you’re spending around USD 20 million in gross terms to drill a well, they are instantaneously economical at these production levels, and return a relatively short payback time.

At what stage of development is the Amukpe-Escravos pipeline?
The highly anticipated Amukpe-Escravos pipeline will be our second main pipeline for our Western Assets, and we are trying to get it up and running. With the launch of this alternative oil evacuation route, we believe oil transportation will be more resistant to pipeline sabotage in the Niger Delta. We are also trying to connect the pipeline to the Trans Escravos pipeline, where our OML 40 production flows. Thus, we ultimately intend to have multiple export routes. We will look to do that as well in the east.

How critical is the exploitation of gas for making energy more available and affordable?
If one looks at the gas market, more than half of the natural gas produced in Nigeria today is transformed into LNG for export. The remainder is either flared or reinjected with only 10-15% fed to the domestic market. This is where the real opportunity is.
In terms of power, the nation’s grid is heavily underutilised. There’s an installed capacity of around 12 GW, three-quarters of which is gas-fired. There are also new on-grid gas plants with no gas supply, so getting the gas supply in place is key to further utilising gas domestically. Much of Nigeria’s electricity is expensive diesel and petrol, off-grid, small-scale power gensets. Estimates suggest that Nigeria has over 20 GW of this power generation, compared to 4-5 GW of utilised on-grid gas-fired power. This is not to mention the cost of importing this fuel, which is expensive and uses scarce foreign exchange reserves.
So, the rational move is to displace with on-grid gas, which is not only more efficient, but also cleaner, reducing carbon emissions. So, growing the gas-to-power business both on- and off-grid is critical to achieving more affordable and available energy for Nigerians.

To what extent is gas the centrepiece of Nigeria’s energy transition?
The industry, led by the government, has collectively come to terms with the fact that oil has a future, but at some point demand will change. The ability to export your oil for the next 50 years is very much a question mark.
The government is realising that re-investing in the country and its energy industry is now critical. It’s time to extract crude oil cost-competitively to then redeploy some of these profits back into gas development. This seems to be materialising through the Decade of Gas, which is being rolled out via the development of pipeline infrastructure, virtual pipelines and the construction of gas plants and LPG terminals, among other projects.
The government is also trying to develop gas-to-power, which will be a game-changer for the economy, but not an overnight process. In the context of a rapid energy transition, gas is the perfect resource and building the on-grid capacity for gas will allow renewable energy to come in at scale. Without on-grid gas, we can only aspire to have off-grid, small-scale solar solutions, which don’t offer a 24/7/365 energy delivery and are more expensive. With a robust gas network, we could aspire to larger-ticket solar plants.
Lastly, Nigeria’s expansive population is likely to double in the next 30 years, and one cannot have social development without affordable energy. The use of gas can secure this affordable energy, while also having a crucial environmental impact.

Tell us about the importance of the Assa North-Ohaji South (ANOH) gas project.
Natural gas has become increasingly important since the inception of Seplat just over a decade ago. Our niche market for gas is the domestic one and we aim to be at the forefront of Nigeria’s energy transition in the next decade. The ANOH development is one of the government’s 7CGDPs – Seven Critical Gas Development Projects – and our involvement provides a clear path towards strengthening Seplat Energy’s position among Nigeria’s leading indigenous energy producers. The FID for the USD 650-million ANOH gas project, which is managed by a 50/50 IJV between Seplat and the Nigerian Gas Company (NGC), was taken in May 2019. The project involves the construction of a gas processing plant with a capacity of 300 mcf per day located in Imo State, near our OML 53 operation.
Funding was completed in February 2021, almost 100% over-subscribed as a debt deal. The financial scheme could be considered a cookie-cutter structure, involving seven banks to provide USD 260 million of debt, namely: Stanbic Bank, United Bank for Africa, Zenith Bank, FirstRand Bank, Mauritius Commercial Bank, Union Bank of Nigeria and FCMB Capital. We have a dual-currency tranche structure with lenders providing USD and naira. This is a clear statement on the importance, calibre and commitment of such a project.
As for recent advances, the imported units arrived at port in July 2021, and subsequently moved to site. Progress is being made, and we expect to commission the facility early next year and aim to produce first gas in mid-2022. We are proud to say that much of the project is Nigerian local content, which is essential for us and government.

What can you tell us about the company’s recent name change?
On May 20, 2021, our shareholders approved our name change to Seplat Energy. We have grown out of being solely a petroleum development company, largely back as far as 2012 when we took the decision to accelerate our gas development. Seplat Energy more accurately reflects our business model now and in the future when we will offer a much broader energy mix. The rebranding represents this new direction we have taken. We are not here to set long-term targets like being net zero by 2050. We have to design something that works for where we are now. Therefore, our target is reducing CO2 today and we have a target to gas flare out by end of 2023 well in advance of the government’s target of 2030. Our focus is however not only on environment-focused goals, but also social, in line with the UN Sustainable Development Goals.

What growth strategy are you looking at, given the changing environment?
Seplat Energy has a diversified portfolio of both oil and gas assets. Our plan is to move further down the gas value chain from large-scale processed gas to CNG/LPG and gas to power. The natural extension is to pursue renewable energy opportunities as part of a wider energy mix. We will naturally develop our existing portfolio but we will also capitalise on the right inorganic opportunities. We are listed on two stock exchanges – London and Lagos – with the ability to access capital globally and in Africa, and capital discipline in deploying that capital. How to deploy it is critical and acquisitions are one part of that.
The game has changed for IOCs as they face massive global pressure around oil, and their business models are transitioning arguably towards electricity. In the next 24-36 months in Nigeria, we expect a major reshuffling in asset ownership, particularly onshore and in shallow water. IOCs will look into divesting from these assets focusing on the deepwater, which works better for their cost profiles. Independent indigenous companies like ourselves are well positioned to capture these opportunities and grow them.
Lastly, Nigeria is too big to ignore yet not easy to understand. It has enormous resources and potential but you need players like ourselves who know how to navigate it. This is why we need to foster a business environment in this country that can attract international investment. With these conditions in place, we will be able to further thrive.

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