Diversification and localisation in NigeriaMay 20, 2020
Ese Avanoma, CEO of BRADE Group, talks to The Energy Year about how early digitalisation, innovation and diversification prepared the company to face the Covid-19 crisis and the need for organisations to work closer together. BRADE Group is an indigenous company that provides project management, drilling and completion, marine and EPCI services to the oil and gas industry.
How has your business been affected by Covid-19?
Everything was ready for a boom in 2020, and we were geared up for it. Both our company and the industry did very well before March 2020, then the pandemic came and here we are today, still reeling from the effects of the downturn in oil prices globally. The times we live in call for resilience, quick thinking and innovation, so information is critical.
As soon as Covid-19 appeared in the news and was declared a pandemic, we sought clarity from industry experts to prepare ourselves for how to manage our clients and deal with major disruptions. One of our major clients, SEPLAT, slashed their drilling activities by more than 60-70%. We first got a glimpse of this from their board meeting notes on the company’s website. Further information from members of SEPLAT’s leadership team confirmed that there was indeed going to be a reduction in their E&P activities. So, we adjusted our strategy accordingly and shelved some of the plans we had put in place.
Starting from the third week of February, other effects started to trickle in as well. Part of that, unfortunately, was a plan for across-the-board reductions in expenditures, as well as reviews for a reduction in staff emoluments and our employee headcount. However, a seemingly positive side of the ongoing adaptation is the ability to work from home. Lagos is a densely populated city that is notorious for traffic congestion, which has led the city to be ranked as the third-most stressful city in the world by CNN Travel. So, working from home at a time when social distancing can save lives is a relief for employees.
During this period, we only kept critical projects going, which meant, for instance, that we required client confirmation that certain long-lead items will still be necessary. Of course, this still posed a challenge. We were right in the middle of several projects when the lockdown orders were received. However, our focus was on client satisfaction and timely project delivery.
During the last week of April, we incurred a lot of air freight charges from bringing in equipment from China to meet tight client deadlines. There were very few cargo flights coming in, so shipments waited in the queue for days. It had to be a “critical project” for us to give it attention, and that’s what we did.
Are companies that were resistant to digitalisation suffering more now?
Yes, they are. We rebranded in December 2019 and increased our online visibility, and that has really helped us because we are able to engage in target marketing online with smarter and cheaper resources. The entire world turned to the internet for information and entertainment. So, companies that have an interesting online presence are seeing higher traffic that will convert into sales now and in the coming days ahead.
A change that occurred for us after the crisis of 2014 and which has turned out to be beneficial for BRADE is our portfolio diversification. Going forward, even if oil prices recover due to demand, the energy world has changed as more people will resist the use of fossil fuels due to its impact on our environment.
In the USA, there are growing calls for policies targeting fossil fuels, and there are ongoing global improvements in alternative energy sources, especially renewable energy. All of these anti-fossil fuel arguments will eventually catch up. We are not very sure of the dimensions that the oil business will take in the future. Therefore, diversification is critical to the survival of businesses such as ours.
We have also invested in other businesses such as BRADE Chemicals, which has peaked right now. In fact, we have some containers of manufacturing chemicals yet to leave the Lagos port, but which were already paid for six weeks ago. The chemicals business will likely consume three times our current investment and still generate a decent ROI. This is a business that will potentially rival BRADE’s current capacity in the oil and gas industry.
How do you pair introducing new technologies with the reduced rates that are expected?
New technologies generally result in cost reductions and savings over time. During the Covid-19 lockdown, we had a meeting with Total Nigeria about the Maxtube Duoline technology, which is relatively new to Nigeria. The technology lines carbon steel pipes with GRE [glass-reinforced epoxy] to eliminate water injection and gas well challenges with corrosion in pipes, which saves capex on high-end alloy pipes such as chrome tubing.
This technology is already familiar to Total in other parts of the world where it operates, and it is something the company is keenly interested in here. Other E&P companies such as Eni and SPDC [Shell Petroleum Development Company] are also interested in deploying this proven technology in Nigeria.
We have several other technologies adapted to Nigeria and available to clients right away. In addition, we are in ongoing conversations with various partners overseas to jointly set up manufacturing centres here in Nigeria. This will create jobs, reduce if not eliminate import taxes, reduce business costs and ultimately reduce Nigeria’s dependence on forex. This applies to industries such as OCTG [oil country tubular goods], about which we are concluding talks with a Chinese partner to set up production locally.
The COVID-19 lockdown reiterated the need to set up local production and avoid ridiculously expensive air freight charges like we encountered, in addition to very high duties on steel importation. Imagine paying five times the average price for air cargo because there were no flights from Beijing or Shanghai to Lagos. This will erode any profit margins anticipated. The numbers clearly favour local production in Nigeria; it is the sensible and sustainable thing to do.
Do you see technologies that could enhance the country’s downstream performance?
Part of our plans for BRADE Chemicals is to set up a blending facility. The market is there, and demand clearly outweighs supply several times over. The strategy is blending for the oil and gas and manufacturing industries, with more than 80% of those being along the Lagos-Ogun axis. Production chemicals is a market we are interested in. Most of the chemicals come into the country already blended, which attracts high import taxes. But with a blending facility in Nigeria, we will be looking at only 5% taxes on imported raw materials and creating jobs, amongst several other gains for BRADE and the country.
We have already finalised the plan, design, location and layout, so the main delay is financial. Hopefully, we can grow our partnership with Dow Chemicals a lot more in this area and offer service centres for core chemistries. We are also reaching out to investors to look at the opportunity.
How do you rate the level of emergency communication from NNPC and the government?
This is the first time I am seeing full alignment between NNPC, the Ministry of Petroleum and the Department of Petroleum Resources. This shows the industry is moving forward. It’s an encouraging state of affairs. COVID-19 aside, we expect a lot of positive movements in the next few months, which will translate into value creation.
What is the role of local industry associations in Nigeria’s ability to weather the crisis?
There is a lot of work to be done if we look at the organisations in Nigeria and how they can come together to move the industry forward. We know how powerful PETAN [Petroleum Technology Association of Nigeria] is, and we also have OGTAN [Oil and Gas Trainers Association of Nigeria] and several other organisations like that. The question is how much they can pull their weight together for the greater good of the Nigerian oil industry and not just their own interests.
The NCDMB [Nigerian Content Development and Monitoring Board] has shown huge capacity in this regard. A good example is how it has championed and supported three Nigerian companies with capacity for OCTG manufacturing. But now the question is this: Can those three companies pool resources together to execute pipeline projects such as the ANOH [Assa North-Ohaji South] gas project or Nigeria LNG Train 7 in terms of financing and project execution? There are a lot of opportunities to be harnessed if they can see the value in coming together.