Mr. Austin Avuru is the Chief Executive Officer, CEO, Seplat Petroleum Development Company Plc. In a recent chart with journalists, he provided fresh insights into the company’s performance and other sundry issues including the continued fall in global oil fuel prices, gas commercialisation policy and a host of others. Excerpts: How would you assess Seplat’s half year results in terms of the fundamentals and key highlights?
Our half year results on the surface looks very disappointing. Profit after tax was 79% lower than it was this time last year. I think that’s a big highlight that makes it look disappointing.
But the very positive side of it is that recall that at the end of last year, November/December, we were hit with I would say three very critical buckets of headwinds if you will call it that.We suddenly started seeing oil price that was half of what it was; for instance, our gross revenue is $248million against $388million last year is purely due to oil price difference.
The second was the Nigeria Petroleum Development Company, NPDC, receivables, they were not abating. It is an industry wide problem. The Nigerian National Petroleum Corporation, NNPC, and its subsidiaries owed the industry about $7billion. This is largely the reason you see overall work programme across the industry is very low because of deep water production, which makes us as a nation to be able to do 2.2/ 2.4 million barrels daily. People don’t realise that if you take away deep water, we are actually doing just 1.2 million barrels. That’s a reflection of the cutback in work programme consistently over the past five years. So we are not seeing increase in capacity in traditional terrains- onshore and shallow water. I am just giving a background to the fact that the cash call problem has been a major hindrance for development. It finally hit us so we have receivables from NPDC that is twice our total debtthat’s as huge as it is. So it starts affecting your cash flow, starts affecting ability to grow.
Then we had the second Trans-Forcados problem between November and April this year. As a matter of fact, it was 40% outage for the first half, so 77 days out of one half of the year, that’s 180 days. For 77 days we were not producing because of the outage. So you combine these three buckets of very terrible headwinds. You would think, and quite frankly anybody who doesn’t have the capacity to react would probably be struggling. But anybody who hasn’t had the capacity in the next six months to adjust to these headwinds will run into serious problems in the next one year.
The good thing about these results, Isaid in London that we made a profit at all in spite of these headwinds is a clear reaction of how quickly we were able to react to them. So, for instance you saw that within two months, between December and January, once we were hit with these oil prices, we were able to completely re-order our overall work programme; cut down capital expenditure, CAPEX;and cut down budget for 2015 by almost 40%.That’s how quickly we could adjust.
Your investment in gas seems to be paying off with a 117% rise in the first half of the year. Tell us about the investments, target and plan?
If you look at the key areas for the promises we made in the past three years; we had always said that our target was forour gas business to account for 20-30per cent of our bottom line by 2017.
Today, as we speak, we have a processing capacity of 300mmscf per day, and we are averaging between 220 million and 260mmscf as against the previous three years where our annualised average was probably about 70mmscf. And this is because we have commissioned our 150mmscf gas plant, in addition to the capacity we had before to returning even the 19mmscf capacity we had. I don’t know any other company that has delivered in terms of more than doubling its capacity to deliver gas into the domestic market. We are on target for our gas business to be a key source of our bottom line. Like I said, if we can achieve 20/25% of our bottom line, it’s looking like we can achieve it before 2017, so you can tick that box.
Earlier in the year you expressed concern over an investment that seemed to have dragged. Has that been fully resolved and is that part of the headwinds you mentioned?
The other headwind we had is that we made a deposit for an investment that has dragged on for too long. Plus also the fact that we’ve not been able to extract the full value from the investment we made on OMLs 53 and 55 because there’s still the ongoing litigation. So we have two key areas of investment that have dragged on our balance sheet because they’ve not brought the revenues at this time that they should have. They remain assets that will contribute to our balance sheet and our production, but over this period they managed to just be a drag on our balance sheet. So, that’s what I mean by inspite of all these we made key adjustments to the way we run business, to still be able to return a profit.
We have worked very hard with the NDPC to put certain measures in place; it is still work in progress. We think we’ve reached the plateau. We should start dragging the receivable downwards going forward. We think that the Trans-Forcados is now a national problem. Barring any unforeseen circumstances, if the outage of Trans-Forcados is not at the disastrous level that it was in the first half, we then think that all the indices should start looking up gradually.
Due to the downturn in oil prices,many argue that downstream investment could be another window.Given the problem of vandalism which has actually brought down your operations are you going modular and mobile?
My quick answer to that is; Seplat as a company, at the appropriate time and given the appropriate opportunity could, maybe even will, invest in the midstream to downstream which means in refining. Could, is the word I used. But let me caution that when you are producing 75,000 barrels per day you don’t talk about turbine plants. So, marginal fields are doing two to 3,000 barrels per day, you can spend $2million and bring in a turbine plant to process 1,000 barrels a day and deliver 100, 000 litres of diesel a day.
Anybody can talk about modular refinery, so, the quick answer is yes we could. We could stretch not just from crude oil and natural gas production to natural gas processing and the delivery of natural gas into the domestic market. Onemore logical step would be refining and that could be something we could look at in the future
Have you in any way thought of cutting cost in the area of human capital, and is the new oil price in any way affecting your move to acquire more assets?
First, human capital – yes, you cannot reduce G and A without affecting human capital. Our core-staff has not been affected and they will not be affected. They were non-core staff,contracts staff and that’s why at any point in time you have core staff and contract staff that are related to aspects of your growth. So if I am building a gas plant and it is going to take me two years, I can hire some people dedicated to that project and when the project finishes they go. So, there are people who were working for us as drilling consultants when we were running 7 rigs. We are now running one rig so they won’t be there.
Now whether oil prices were high or low, our acquisition strategy is based on filing certain critical gaps. As a company, we have a projection for what our oil and condensate production should be at the end of 2018. So we have a growth profile that we are working towards. We have a projection for what our gas production should be at the end of 2018. If we achieve that optimum production of both natural gas and oil, do we have the reserves that can sustain that production for 20 years? That’s reserve production ratio.