TOGY talks to
Constructive development in NigeriaJune 18, 2018
Ladi Bada, the managing director and CEO of Shoreline Natural Resources, talks to TOGY about security challenges, the importance of infrastructure development and local content policies. Founded in 2010, Shoreline Natural Resources is a joint venture between Nigerian-owned Shoreline Power (55%) and Heritage Oil (45%), an independent upstream company headquartered in the UK.
In January 2018, Vitol Group agreed to pay Shoreline Group USD 530 million to finance development of an oilfield in exchange for access to part of the output. Shoreline is hoping to boost the production from its operated OML 30 from 55,000 bopd to 80,000-100,000 bopd and will also use part of the sum to refinance existing debt. In April 2018, the output from OML 30 was reported to have reached 75,000 bopd.
• On local content: “Indigenous producers are held to a high standard when it comes to local content, it is not just the IOCs. We have to be at the forefront of providing local content in our services.”
• On pipeline closures: “We want to make sure that the ongoing security challenges are completely taken away. Every discussion goes back to the Forcados terminal. We also recognise that if that continues to occur, there is no way business can continue to exist.”
• On security: “If you take out security or community disturbance as a single item, onshore production is naturally much cheaper than offshore production. Your unit cost onshore is much cheaper. Unfortunately, for an investor coming in, they have to bear in mind the cost of additional security onshore.”
• On unrest: “The largest cause of disruption is unemployment. When people are unemployed, some people get pushed to do terrible things. Improved infrastructure could help this.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Ladi Bada below.
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What are the most important growth challenges in Nigeria right now?
First and foremost, we want to make sure that the ongoing security challenges are completely taken away. Every discussion goes back to the Forcados terminal. We also recognise that if that continues to occur, there is no way business can continue to exist. Any company that buys assets in this area will do a production profile for your lenders to show how you will repay the money. When you do that, you put a risk element in that. Generally, most companies will put 20-25 days downtime, and that is in a decent environment. Other environments might only have five or six. Most companies in Nigeria put 20-25. That is bad enough, but you can imagine what it will look like after a militant attack. We have had over 500 days of shutdown already from this. Security is critical. It is number one.
We have to make sure we have a good working relationship with the communities and the stakeholders in the communities that have led to some of the security challenges. There are ways to dialogue with communities leaders so that we can find win-win solutions. If we don’t resolve that, all the technical plans we have will go nowhere. That is the biggest challenges.
The second challenge is the funding challenge that came from the shutdown of 15 months. It puts us and other companies in a very difficult situation. Cashflow was very difficult. First we tried to release that tension by refinancing to get an easier payment plan. That is what we have done with the Vitol transaction. It was not designed to put more money in our pocket, but to allow more flexibility so we can move forward.
How do the operating costs onshore compare to investing offshore?
If you take out security or community disturbance as a single item, onshore production is naturally much cheaper than offshore production. Your unit cost onshore is much cheaper. Unfortunately, for an investor coming in, they have to bear in mind the cost of additional security onshore.
For the most part, we find that it goes beyond just security. You lose more from the deferments, the days you are off. If it costs you USD 1 million to repair the pipeline, you can calculate that as a loss, but greatest loss you face is the days you were shut because the revenue is not there. You have to bear those potentials in mind, but those can be mitigated by finding better ways to engage the communities. In developed basins, even in Angola, they don’t have this level of security issue. It is more prevalent in Nigeria than elsewhere. I think that is the biggest challenge.
What can the government do to solve this?
First and foremost, the role of the government is to protect corporate businesses and individual citizens. That is the primary role. The government is also the largest beneficiary of any oil and gas investment. For any USD 1 oil and gas brings in, the government takes close to USD 0.80. So it is the duty of the government to provide physical security and intelligence. We have also found softer engagements also work, sometimes even better. That includes the government actually providing more conducive infrastructure environments for those communities. If the government provides better roads, schools, healthcare, water, power, and so on, the lives of those people are improved and they are less agitated and liable to create disturbance. In my view, the largest cause of disruption is unemployment. When people are unemployed, some people get pushed to do terrible things. Improved infrastructure could help this. The government is responsible for this. We need to do something to improve social and physical infrastructure. A local company or IOC cannot provide all the infrastructure, the government must help.
What is your opinion on local content policies?
Indigenous producers are held to a high standard when it comes to local content, it is not just the IOCs. We have to be at the forefront of providing local content in our services. We are working fastidiously. We are definitely way beyond the minimum. We are doing almost 80% of our contracts with indigenous contractors. As much as possible, we try to encourage the local companies. And they are getting better all the time, which reduces costs and problems.
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