Venturing into Nigeria’s upstream

Nigeria

Salim Buhari, CEO of Petrogas Energy Trade West Africa, talks to The Energy Year about the company’s recent move into the upstream sector and new opportunities in all levels of the national oil and gas industry. Petrogas Energy is an oil and gas trading company and recently acquired an upstream asset in Nigeria.

What position does Petrogas Energy have within the energy industry?
Petrogas started in 2016 with retail operations. Over the years, we have grown our company into a diversified and fully integrated oil and gas company. We identified potential in the downstream sector and focused on trading as our key competence. We are now expanding organically into other sectors of the industry.
In 2018, we were able to secure our first contract with NNPC to trade Nigerian crude oil and natural gas liquids. In 2019, we were part of a group of companies that were engaged by NNPC for the DSDP [direct-sales, direct-purchase] contract, where we lift crude oil in exchange for refined products that we bring into the country on behalf of NNPC. This was our major activity until last year when we made our first venture into the upstream sector with our participation in the marginal field bidding round, which recently concluded.

How does the company aim to enter the upstream space?
We have identified the following key avenues through which we can enter the upstream sector: the marginal field bid round, active participation in ongoing IOC divestments and the upcoming oil block bidding rounds. The first step was taken with the Egbolom marginal field, where we’re now aiming for first oil. We intend to accelerate our acquisition portfolio by keying into potential IOC divestments that we have identified. What we want is an asset that meets our investment criteria, either onshore or offshore.
Being an indigenous company, we feel confident about the environment, and we aim to support domestic growth and attract global investment. We are spearheading this quest. It is a good opportunity for us to quickly build capacity, size and scope in the upstream sector.

What development plans do you have for your newly acquired Egbolom marginal field?
We have merged with a group of independent companies and are now at the signature bonus payment and award stage. By nature, marginal fields are proven fields. What is required is to provide a solid field development programme with corresponding infrastructure to enable production.
We already have the proven data. We must now come up with ways to produce at optimum levels. One of the key areas that we have identified as a potential early challenge is evacuation of the product from the field. We have options that need to be discussed with our partners to identify the best and safest way. In terms of required investments, it will depend on which field development programme we choose to go with. We will come up with a joint strategy that optimises the field and enables us to reach first oil as soon as possible.
We expect to start producing in two years’ time. However, we still need to go through the farm-out agreement. The Department of Petroleum Resources has identified ways to optimise the process of documentation and acquire necessary permits, having learned to swiften the process compared to the last bid round.

What are the advantages of the new DSDP contract model?
We recently signed a renewal with NNPC for a contract under its DSDP model from 2019 that had been valid until mid-2021. The contract was renewed until 2022/2023. Under this contract, we sell crude oil in exchange for refined products which we bring into the country on behalf of NNPC.
This type of contract gives one a free hand to deliver products from wherever you can source them if they meet NNPC’s requirements and they find the prices acceptable. It enables one to partner with major players and IOCs with global refining capacity. We have a diverse network of actors at the top of the refining chain to source our product; no sole player can supply demand.

To what extent is Petrogas Energy involved in the refining sector?
Petrogas Energy has identified financing the refining sector within Nigeria and West Africa as an opportunity. We seek to partner with investors to enhance a space that is rapidly growing through the rehabilitation of state refineries and the modular refinery phenomenon. Many refineries across sub-Saharan Africa are underutilised and need to be revamped, which requires investment. Refining is an integral part of our industry; it’s in our own interest to have a strong and robust sector.
The reason we try to participate in financing refining projects is because refineries take in crude and turn out refined products. We require these entities to take up barrels and trade. We are active behind the scenes and are keen on supporting the refining gambit by spearheading investments.

What is your strategy for growth in the retail and storage sectors?
The retail subsector is regulated in terms of pricing, not competition. We see a lot going on in terms of M&As. The retail spectrum is dominated by fewer yet stronger actors, being a more mature space. Currently, one can participate in the industry without having a strong retail presence but that will change in the not-too-distant future.
As a matter of strategy, we have decided to grow inorganically by identifying opportunities in M&As and acquiring companies that have a retail presence that can achieve the scope we want within the shortest space of time. We aim to develop an aggressive strategy to become an important retail player in the country.
As with retail, we are also looking carefully at the storage sector. We understand the need for it, although there is substantial storage supply within the country. However, more storage infrastructure is needed further into the country. We intend to focus on this area at a later stage. We plan to build our storage capacity along with our retail capacity through an integrated growth strategy.

What opportunities do you see in Nigeria’s transition from oil to gas?
The global industry is transitioning towards cleaner forms of energy. Nigeria has proven to be more of a gas country than an oil one. However, there are huge investment gaps in gas infrastructure and gas monetisation.
As a company, we are still evaluating our options. We envision gas as the natural substitute for gasoline and other petroleum products in the domestic market. The government is pushing the gas narrative; it has tremendous potential. We are interested in gas infrastructure, be it LPG terminals or in-country distribution networks. Demand exists but infrastructure does not. Opportunities revolve around infrastructure rather than volume. We see gaps as opportunities.
NNPC is making headway with investments such as the Calabar-Ajaokuta-Kaduna-Kano and OB3 pipelines that will change the dynamics of gas accessibility across the country. These projects will trigger more opportunities. We are mindful of this and aware that gas will eventually be the dominant energy source. We are looking for partners and investors to be part of the gas story in Nigeria.

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