Offshore progress in NigeriaMay 30, 2018
Seyi Ajibola, the CEO of Zircon Marine, talks to TOGY about financing challenges, the impact of oil price fluctuations and the outlook for Nigeria’s downstream sector. Zircon Marine is an indigenous marine services provider in Nigeria.
On outlook: “There is increased upstream activity. The oil price has inched back up. Projects are coming back on stream. I sense a bit of a haste to get things done as quickly as possible.”
On competition: “We are working in an industry where 80% of the fleets are owned by 20% of the companies. You are always up against significant economies of scale.”
On infrastructure: “How do you transport petroleum products with all the gridlock everywhere? The challenge is still how to get stuff from the jetties to the pump station throughout the country.”
On costs: “Prices will not go back to pre-2015 rates, but things are already becoming more expensive than they were a year ago.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Seyi Ajibola below.
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What is the outlook for 2018?
There is increased upstream activity. The oil price has inched back up. Projects are coming back on stream. I sense a bit of a haste to get things done as quickly as possible. The outlook is good in the upstream side, certainly better than 2017. There have been a lot more requests for information, and people seem busier.
What are the main market particularities of moving from indigenous clients to international ones?
The cycles with IOCs tend to be longer. If you are a small to midsize player, you need to think about revenue streams that allow you to exist on an ongoing basis. An advantage we have is that we are an integrated operator with several lines of business. Business will always be there. A lot of the indigenous players are working with international standards. The only thing that changes with Nigerian companies is that the project cycles are shorter.
By being focused, we will build capacity as we have over the past couple of years. We have always been a marine-focused company because we operate other vessels. We have always had marine competence. Directly in operating marine assets, we have a lot of history. We certainly tick all the boxes.
What are the main growth challenges you have?
Financing and access to funding resources. That is no different from anyone else. We may be even better positioned. What is lost sometimes is the importance of scale. There are multiple players that tend to work with only a few assets. We are working in an industry where 80% of the fleets are owned by 20% of the companies. You are always up against significant economies of scale. If you do not have a book of assets backed by infrastructure, it is very difficult to compete, especially when you layer expensive finance on top of all that.
The cost of funding in Nigeria is so much more than what is available in the world. Because companies do not have the size, they cannot do things cheaper or run efficiently. Companies with 200 years of history running vessels know how to navigate, lower cost and have an efficient supply chain. On the other hand, a huge number of players do not have the skills or resources to sustain their business. Invariably they end up in some kind of trouble. Achieving significant economies of scale is critical, and that is really hard without access to cheap funding.
What do you think the Nigerian oil and gas industry has learned from the oil price crisis?
Cost-control activities have been huge. We had to drop our prices by 55% between 2016 and 2017. We worked with our partners to do that. That is huge. In that way, service providers have become a lot more efficient. If you are an operator, you realise that if you sit down with your providers, there is a way to make your business more profitable, even with the low oil price. That is across the board; big service providers will tell you the same. The mean drop in rates was 35-40%. Everyone I spoke to took a significant hit as a service provider. That was one lesson, and that was a good lesson. Everybody is thinking of ways to be more efficient. We had to move things around a lot, and thanks to that we are still in business.
Prices will not go back to pre-2015 rates, but things are already becoming more expensive than they were a year ago.
What are your views on the development of the downstream sector in Nigeria?
As private refineries come on stream in the next years, the existing government refineries may become redundant. It would be a waste to let these assets go moribund.
Another topic is the state of Nigeria’s general infrastructure, such as roads and ports. How do you transport petroleum products with all the gridlock everywhere? The challenge is still how to get stuff from the jetties to the pump station throughout the country.
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