NNPC is currently driving the expansions in major pipeline construction, supported by private sector companies like Axxela. We believe the private sector is best positioned to fill the huge gaps that remain in gas infrastructure investments.

Wale TINUBU CEO OANDO

Private sector-led development in Nigeria

September 19, 2018

Wale Tinubu, the CEO of Oando, talks to TOGY about natural gas infrastructure development in Nigeria, the impact of low oil prices on the market and the investment environment in the country.

• On infrastructure: “Gas development is closely tied to infrastructure development – or the lack of it. Gas infrastructure is a high-cost, low-margin business. It has a high barrier of entry and requires deep technical and terrain knowledge and experience to succeed. Unfortunately its development has been stunted, in part by the slow development of the market, and in part by the difficulty in accessing long-term, low-interest capital needed to undertake the massive projects that ensure delivery of gas to all parts of the country.”

• On the price drop: “The survivors have learnt necessary skills that will go beyond the bust. Companies are implementing cost management strategies as well as stricter investment appraisals and finance discipline, the impact of which is now being felt, as there has been a 27% decrease in the average cost per barrel.”

• On reforms: “2017 marked the turning point in the Nigerian economy as it witnessed a substantial recovery. The government made giant strides to restore investor confidence by executing initiatives around improving the business environment, promoting transparency and accountability and finally the passage of effective policies.”

• On outlook: “As long as work continues around strengthening governance, improving the business environment and also reducing the barriers to investment, the country will continue to be a hotbed for investment.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Wale Tinubu below.

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What are the most significant challenges to developing Nigerian gas?
Gas development is closely tied to infrastructure development – or the lack of it. Gas infrastructure is a high-cost, low-margin business. It has a high barrier of entry and requires deep technical and terrain knowledge and experience to succeed. Unfortunately its development has been stunted, in part by the slow development of the market, and in part by the difficulty in accessing long-term, low-interest capital needed to undertake the massive projects that ensure delivery of gas to all parts of the country.
NNPC is currently driving the expansions in major pipeline construction, supported by private sector companies like Axxela. We believe the private sector is best positioned to fill the huge gaps that remain in gas infrastructure investments, and Axxela remains at the forefront of championing progress in the expansion of natural gas supply to the nation.
Axxela has spent close to two decades and over USD 500 million driving gas infrastructure development, gas distribution and power plant development in Nigeria. To date we have built over 250 kilometres of gas pipelines, meeting the needs of over 150 industries in Lagos and Port Harcourt. We have built sustainable power plants with no legacy debt issues, and continue to complete projects that encourage the development of upstream gas for domestic consumption.

 

How has the oil price slump impacted the Nigerian oil and gas industry?
The recent oil price slump has been one of the most significant in Nigeria’s history. Coupled with the increase in US shale production, which led to a reduction in Nigeria’s oil exports, and the Niger Delta security issues, the price slump led the country to one of the worst economic recessions in its history.
In January 2016, oil prices dropped as low as USD 26 per barrel and at that time, the average cost of production for Nigerian oil companies was about USD 29 per barrel. Needless to say, the industry was in chaos with companies barely breaking even and struggling to survive.
On a positive note, the survivors have learnt necessary skills that will go beyond the bust. Companies are implementing cost management strategies as well as stricter investment appraisals and finance discipline, the impact of which is now being felt, as there has been a 27% decrease in the average cost per barrel. Companies such as ours are also optimising their portfolios to ensure that their business are viable. Lastly, most industry experts agree that innovation is the future of industry, from modular refineries to FLNG, and we continue to strive for innovation to solve our unique challenges.

How has investors’ confidence evolved in the past years in Nigeria?
The last few years saw a significant decrease in foreign investment into the Nigerian economy, largely due to the recession, which was a result of the crash in oil prices. That coupled with challenges such as a difficult working environment and uncertain regulations and policies led to declines of about 60% in Nigeria’s foreign direct investments.
2017 marked the turning point in the Nigerian economy as it witnessed a substantial recovery. The government made giant strides to restore investor confidence by executing initiatives around improving the business environment, promoting transparency and accountability and finally the passage of effective policies such as the PIGB. In a year, Nigeria moved 24 points in the Ease of Doing Business Index from 169 in 2016 to 145.
This translated to a 138.7% rise in FDI from 2016 to 2017, and Nigeria remains one the fastest-growing countries among the world’s developing and emerging countries. As long as work continues around strengthening governance, improving the business environment and also reducing the barriers to investment, the country will continue to be a hotbed for investment.

What have been the key operational and financial developments for the past year for Oando’s business divisions?
In our upstream business, Oando Energy Resources achieved net production of about 41,000 boepd as at December 31, 2017 as well as growth in its 2P reserves to 470 million boe. The company also signed a landmark agreement with one of its JV partners to develop certain low-hanging opportunities within the joint venture via a service contract model over and above the operator’s planned schedule towards generating additional value to the JV. Another notable achievement is the successful completion of seismic acquisition of 16,700 square kilometres in Qua Iboe field (OML 13), through our subsidiary, Oando Qua Ibo, showing evidence of our technical ability to find and develop oil and gas resources.
In the last year, our trading division traded over 19 million barrels of crude oil under our various contracts with NNPC and delivered 500,000 tonnes of refined products into the country, continuing to deliver value to the Oando Group.

How have the low oil prices crisis affected Oando’s operations?
The crisis has led us to adjust accordingly with initiatives focused on cost optimisation, balance sheet deleveraging and improved efficiency. As a company, we took a strategic decision to shift our business strategy towards growth via our dollar-earning businesses whilst significantly deleveraging from our naira-earning businesses. This has contributed to the improved performance recorded by the company

Which are the key strategic goals in each of Oando’s business divisions?
In the upstream, our objective is to achieve 75,000 boepd of production and 500 million boe in reserves over the next five years and continue to deliver value to our shareholders. In our trading division, our focus will be on increased revenue and profitability on operations in the WAF [West Africa] region, growing our regional footprint in the Middle East and North African region and maximising crude oil volumes traded out of Nigeria into Asia.
Our current plans for growth include the expansion of our trading structures in Africa, capitalising on expanding scope in the SADC [Southern African Development Community] and eastern regions as well as developing key supply mechanisms into Middle East and North Africa.

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