Any rate adjustments being made now should be time limited.


Accommodation and moderation

May 14, 2020

Eke U. Eke, CEO of SpringRock Group, talks to The Energy Year about steps the company has taken to protect its workers and ensure business continuity during the pandemic and the best timing for Nigeria to begin pursuing renewables. SpringRock Group is a Nigerian E&P and oilfield management services company operating in Africa.

How has SpringRock managed the human and business impact of the Covid-19 pandemic?
The past two months have not impacted us as significantly as they may have impacted several other organisations. This is because of the unique nature of where we were in terms of our cycle of operations prior to the pandemic. In March, we were moving our operations from one field to another, and we were winding down a project to its conclusion on a third field.
Towards the end of April, we became ready to move to the next phase on another project, and we had to look at getting that going in light of the circumstances we are facing around the world. One of the changes we decided to make in restarting this project was to send every person working on the project into controlled isolation for 14 days before they board helicopters to go offshore. During the period of isolation, these workers are continuously monitored and provided food in their rooms, since they are not allowed to leave their rooms or socialise with others. At the end of the isolation period, medical personnel come to check on them before they head out to the platform.
That’s where we are now. All of our office personnel have also transitioned into remote work. We have deployed a clock-in system that allows our people to clock in when they start their work online and clock out when they finish so that we can monitor everyone’s performance comfortably. As an organisation, we had already been used to working with digital communication platforms prior to the crisis, so we did not need to do anything new or additional.
In Ghana, we have been preparing to commence actual drilling on a deepwater exploration project, but it was eventually pushed into May due to the pandemic, and it might be even further delayed. We had a drillship with our personnel on board, and it was going to go to Spain to undergo some preparation and maintenance work before heading back to Ghana. However, by the time it got to Spain, the country was already in lockdown. Therefore, people on the ship could not leave and equipment could not be loaded onto the ship. A limited amount of work was done on the ship itself, but this hiccup has slowed down our activity in Ghana.

What best practices should local industry players be looking at to try to squeeze out more rate reductions?
I believe there must be some adjustments. We have to look at this matter through two lenses. From an oil producer’s standpoint, what they used to sell at USD 45-50 per barrel is now being sold at about half of the pre-crisis price. Revenues have gone down significantly, and the operators’ capacity has also been diminished.
On the service provider’s side, on the other hand, their operating cost obligations and other overhead expenses have not gone down, so they may not be in a position to accommodate large reductions easily. The industry players have to find a middle ground. However, when an organisation is in a position where it has to make some adjustments, these cannot be carried on for long. They would have to terminate when oil price fortunes turn around.
One of the issues the industry has witnessed in the past is that operators easily get used to the benefits of lower rates and want to continue to enjoy those benefits even when the industry rebounds. This is why I think that any rate adjustments being made now should be time limited. Once the oil price gets back into a reasonable zone, rates should also go back up to wherever they were prior to the crisis. It’s important that these adjustments are brought back up based on the behaviour of the oil price.
Moreover, cost optimisation must not come solely from reducing rates. SpringRock often proposes process and operations optimisations that can have a far more significant impact than any percentage rate adjustment could have. Hence, my recommendation is that both ideas should be explored and what is most beneficial employed. The focus should not be only on rates reduction.


How can indigenous operators cope with the reduction in production volumes?
There is already an inherent reduction in ability to produce. Overall, the willingness to fund exploration and production projects has been significantly hindered in this current climate. A number of projects that were going to start in June and July may not kick off this year. Financiers will not be ready to fund development projects at the current oil price, so many activities are likely to continue to shrink.
The government might not necessarily have to say that certain companies must reduce their production levels based on the volumes they are dealing with presently. Due to the pandemic, most companies have already been forced to reduce their personnel footprint, which will lead to a slowdown in turnaround time and activity, and ultimately in production. Hence, in a sense the government of Nigeria could meet their OPEC quota reduction inherently from the factors currently at play.

Does the crisis present an opportunity for industry stakeholders to focus on R&D?
I would say yes and no. No, given that the oil and gas industry comes with a very lucrative business model from one standpoint. As a result of that, the concepts of optimisation and financial efficiency do not always resonate well with the industry’s ambitions. You look at projects that may not be optimally run, but once they start to produce oil that is sellable on the market there will be significant margins.
In that scenario, the push to improve financial efficiency and optimisation does not catch on as quickly as it may in other industries where the margins are smaller. That’s a major stumbling block for us when pursuing optimisation.
Having said that, there are still efforts on the part of SpringRock, and I believe other companies too, to look at how we can achieve better outcomes faster and with fewer resources. That kind of thinking would lead oil companies to make operations a lot more efficient, especially in the current environment.

How have SpringRock’s R&D projects evolved since the outbreak of the pandemic?
We currently have a project that is geared towards bringing efficiencies into the well construction, drilling, testing and completion phase. We also have another project that focuses on producing the best out of a field. What the non-oil and gas world does not know is that when you have a million barrels in the ground, you can normally only bring 300,000-400,000 barrels to the surface and you end up leaving the rest in the ground. There are ways to increase this recovery factor significantly, and our R&D activities are geared towards optimising production and increasing the monetary value of an asset.
We still need one or two years to be able to get our ongoing well construction, drilling, testing and completions new technology development to where we want them to be. On the other hand, we were going to start field testing the new production optimisation tool we are developing just before the pandemic hit the industry, but this has now been postponed to July or August. However, we feel comfortable with what our R&D effort has achieved so far. Once completed, we will turn these advancements into a platform to manage all the various systems and workflows and to optimise production overall in all types of oilfields.
There is ample opportunity to explore R&D and various new technologies precisely because we are being constrained by the circumstances that we all face. There is still that lethargy in the oil and gas industry that resists quickly embracing efficiency and optimisation concepts just because this is a very lucrative business. People in the industry are quick to overlook the inefficiencies in what they are doing.

How will the current crisis affect the pursuit of Africa’s energy transformation?
In order to have a balanced view, we ought to have a reality check on the issue. Renewables still produce a very small percentage of the world’s energy needs, and it’s going to take a few decades to be able to get to a point where renewables can become a measurable contributor to the global energy demand, and also at an affordable cost.
Some countries are in a stronger position to put more effort into developing green energy technologies and ramping up their abilities in this area. However, Nigeria should focus on further exploiting its large hydrocarbon resources and use those resources to build a base from which it can then diversify its economy and fund renewables projects. Nigeria does not have the capacity today to fund renewables projects that would be of a large enough scale to meet the needs of tomorrow.
If we scale back on oil and gas now, where do we get the funds to feed the millions of people living in poverty? Nigeria needs a clear plan for how to increase production from 2 million bopd to 4 million bopd and for how we will utilise that growth to open other revenues for economic diversification and value creation. Only then can we start building a footprint for renewables that will eventually take over oil and gas in the coming decades.

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