How Nigerian content policy benefits indigenous offshore oil, gas construction firms

Strides Energy and Maritime Limited, an indigenous oil and gas services company, is focused on developing local capacity in the off-shore sector of the industry and expanding into a pan-African player. MORITZ ABAZIE, its managing director, in this interview with Patrick Atuanya, addresses issues on the successes of the local content policy, schisms with the Petroleum Industry Bill (PIB), gas flaring and other issues in the sector. Excerpt:

What exactly do you do as an indigenous oil and gas company

Strides Energy and Maritime Limited is an offshore oil and gas construction company. We provide offshore construction services to the oil and gas industry, supporting hydrocarbon exploration and production, what you all call the upstream oil and gas sector.

Our basket of services range from the provision of off-shore construction, installation and commissioning of oil and gas facilities to laying of pipelines and the provision of capital and maintenance dredging services. We are specialised in off-shore because we own and operate marine assets for offshore construction.

The challenges in the off-shore sector are more complex than those of on-shore oil and gas exploration and production.

In Nigeria, the onshore and the shallow offshore sector have been extensively explored. But the bulk of the oil and gas lies in the deep off-shore, and this presently has been an uncharted area for indigenous players here. The Gulf of Mexico and the North Sea oil fields are examples of deep offshore fields that have been extensively explored before now, and production in these areas are on the decline.

The world is looking up to new areas such as the African deep offshore hydrocarbon reserves to provide the oil and gas required for sustaining global economic growth.

Despite the information we have about shale gas being expected to cause a decline in the price of oil and gas, the International Energy Agency has projected an 18 percent increase in oil and gas demand globally in the next 25years which implies increase in price rather than a decline. Nigeria has the challenge to make use of these window of opportunity by leveraging on its oil and gas resources which is abundantly lying in the bowels of the deep sea, to grow the industrial sector and, of course, diversify its economic base . Whether we are doing that now effectively, or not, is an issue that is open for debate.

However, as a company, we have been playing and are positioned to continue to play in the offshore sector. We plan to develop capacity and leverage the local content policy. We are still expecting that the Petroleum Industry Bill (PIB) will be passed as quickly as possible to encourage investors to take investment decisions and explore the resources for the benefit of the country.

Some stakeholders have criticised the PIB, claiming that it is not all-inclusive. What is your take on this

My view is that the PIB seeks to integrate all existing laws in the country relating to the oil and gas industry while introducing dramatic changes in areas like the deepwater fiscal regime. Some of these laws are as old as when oil was first discovered in Nigeria in the early 1960’s. Over time, a lot of learning experiences have taken place. It is only reasonable that these laws are reviewed. Besides, government has realised that they are not deriving optimal benefit from oil and gas exploration and production that is going on. Government has also observed how these things are done in other countries of the world such as Brazil and Norway .

Taking cognisance of these experiences, people have sat down to articulate an integrated legal position to manage the industry dynamics, in such a way that government, as well as the local industry, can derive benefits from the sector. What the PIB basically addresses are government income from the oil and gas sector and economic retention; how to grow local content, encouraging local players to be able to leverage on these to grow and expand; create employment and have retention power, develop access and capacity. It is actually an ambitious and wide ranging piece of legislation. The controversy is in the areas that seek to increase government revenue and make the business more expensive for the International oil companies.

It is normal and expected that the International Oil Companies will want to have it easier, but what we are looking at is a middle ground, what is obtainable in other countries, what is reasonable, what can benefit the country and also benefit investors. Overall, we think that the passing of PIB has been over dragged and this is injurious to the industry and the economy, the bill has to be passed for the industry to move forward.

Why has it been difficult for oil companies, especially International Oil Companies (IOCs) in Nigeria, to stop gas flaring in the midst of international outcry against its adverse effects on the ecosystem; is this wolf cry hypocritical

Well, it is easier to flare gas than to harness it. It is easier to produce oil and flare the associated gas. This has been the strategy from the beginning when the infrastructures were built; the line of little resistance was toed. It is natural in business that when you want to start, you toe the line of least resistance to get going, and having done that, the consequences of gas flaring have been felt, it is obvious and everybody can see it. Government has come up to say, look, gas flaring has to be stopped; it requires capital investment to put the infrastructure required to harness this gas. The time frame has been given and it has to be monitored to ensure compliance.

A lot of the companies are complying. The level of flaring has reduced drastically but a lot still has to be done because what we are looking at is zero-gas flaring. We expect that, in a little while, we will be able to get there.

However, the regulatory agencies may need to review their strategy. The penalty for gas flaring at the moment probably needs to be increased to make it unprofitable to toe that line. If that is done and the monitoring agencies do their job the way it should be done, then the end of gas flaring should be at sight.

Are you saying that part of the blame goes to regulatory agencies like the Department of Petroleum Resources (DPR) and the National Environmental Standards and Regulatory Enforcement Agency (NESREA

A lot has been done so far, but, as I said, a little more effort will help us to realise the goal.

Do you really think shale gas is much of a threat to crude oil sale and, if you believe so, to what extent

The forces of demand and supply are at play here. Shale gas is a reality, but you must know that exploration and production of shale gas is more challenging, and more expensive than the conventional exploration and production of oil and gas as we do here. The United States, for instance, has started harnessing oil and gas from that area, and that has led to a drastic reduction in demand from that country.

However, global assessment by the International Energy Agency shows that despite the fact that shale gas is coming through, the demand for oil and gas, going forward, is also rising even beyond the impact of the shale gas. A recent research, also, shows that demand will rise to about 18 percent in the next 25 years, and predicts that, despite the arrival of shale gas, the price of oil and gas within this period will even increase or, at least, remain stable at current level. Nigeria, as a nation, needs to use this window of 25 years evaluation to leverage on our own resources as much as possible and diversify our economy. We cannot say if this window will exceed 25 years, but the assessment shows a rise to about 15 percent of oil price. I think that it is a good economic horizon for Nigeria to explore.

In assessing the oil and gas industry, as an insider, what would you say is the real impact of the local content law, in terms of implementation and benefits

The Nigerian Content Act has been quite effective. It has been very useful; you cannot compare the situation now for local players with what it was before this policy and the act came on board. The implementation has been quite good; it could be better. The point remains that the policy, the law, is well cut out; it is long overdue. The good news is that it has come to stay and the IOCs are implementing it.

Before now, for instance, let’s look at even dredging services, which is one of our areas of core competencies. Before now, Nigerian companies were not given a chance. But it is something that we can do. We had companies like Willbros, Van Ord, Westminster Dredging, Dredging International, and others. These are multi-national companies and they made it look like a task that no Nigerian company can even do dredging and maintenance. But, with the Nigerian Content Act, the IOCs have been compelled to give Nigerian companies a chance.

We have been given the chance and we are doing it, very well too. The oil is being produced with us providing the access in the same area they used to. Also, in pipeline construction both on-shore and off-shore, in mechanical installation, construction, fabrication, commissioning on-shore and off-shore, Nigerian companies have shown, to a great extent, that we can do these things if we are given the opportunity.

However, there are still areas that need to be addressed. Some companies will need financial support, in which area Nigerian financial market is yet to live up to expectations. This is important because these companies need to grow and develop into world class companies capable of taking complex projects. This requires that they have the capacity, strategic assets, both physical and human resource, which is all capital intensive. This is where the financial market comes into play.

But on government’s side, the laws are there; the monitoring agencies are doing their utmost best ensuring that the laws are implemented. The IOCs are implementing it, and we believe that it will get better.

Would you say you, as a local player, have benefited from the Nigeria Content Law; at what point did you cash in on the opportunities the Act presents

We did not start as an oil and gas company, but rather a trading company in the early 90s. However, in the late 90s, we did a review of the Nigerian economy and its dynamics and felt that the oil and gas sector which provides about 80 percent of government’s income, was at a critical phase and we decided to focus our business strategy to that. The local content policy had not come into play then, and we went on to start acquiring strategic maritime assets.

Our business model is to own and operate strategic assets for the development of oil and gas, with specific focus on the off-shore sector. After deciding to focus on the oil and gas sector, we acquired equipment, trained personnel and management staff.

We brought in dredging vessels and trainers from Holland in the early stage of our development.

It was quite strenuous and tough. We were competing with the multi-nationals and the IOCs were more interested in patronising the multi-nationals whom they considered as tested hands, some of them even coming from their home countries with a lot of experience, financial and technical back-up. However, in some cases, we were getting sub-contracts from these IOCs, which we could have as well gotten directly.

Over time, we started raising this issue, asking why we could not be given contracts directly.

These were the issues and the dynamics that we brought to the front burner, to the government, which eventually culminated into the Local Content Policy and the passing of the Nigerian Content Act.

Yet, we started before all these. Nevertheless, the passing of the Nigerian Content Act and implementation of the local content policy has provided an enabling environment for us to grow faster, develop capacity and achieve our ultimate goals.

What really is the strength and structure of Strides Energy

At the moment, we have a total of 85 personnel and numerous subcontractors in our supply chain that support our outsourcing dynamics. Our strategy is to run a compact organisation that is flexible, with highly skilled and well trained personnel who ensure that our projects deliver exceptional performance always.

What is the strategy, for Strides Energy and Maritime, in terms of growth and expansion?

Our vision is to be the leading offshore oil and gas construction company in Africa, acknowledged by all stakeholders in the industry. We have the necessary medium and long-term strategy to achieve this. We plan to be listed in the Nigerian and London Stock Exchange in the next two years to improve access to long term capital for asset expansion. But at the moment, we are focusing on positioning the company for the next phase of its growth trajectory. By 2016, we hope to embark on major acquisition and expansion project to enable us position ourselves to play beyond the Nigerian oil and gas market. We are a compact organisation as I said, and we plan to go beyond that and be able to compete like any other multi-national in the African market. Our focus is on Africa, which is the new frontier of global economic development at the moment.

Shipping and offshore oil and gas exploration?

In the offshore terrain, you need what is called offshore construction vessels to execute construction and installation projects, just as you use earth-moving equipment to carry out civil works on land. These are vessels used for laying pipelines and installing equipment in the off-shore sector. There are support vessels also like anchor handling boats and supply vessels that provide support services in this regard. We have developed capacity for owning, and operating these facilities. We plan to extend our services in this area to other African countries that have offshore hydrocarbon resources.

Restiveness of Niger Delta youths is widely reported, especially as regards oil and gas industry, how do you grapple with some of these challenges?

That, exactly, is where we have competitive advantage against the multi-national foreign companies, so to speak. Because we are Nigerians and we understand the issues of the agitation, what the people want, what the people are asking for and what is responsible for the restiveness, we address these issues and work with communities as partners. They benefit from our presence in their communities and so we are welcome anywhere, anytime to work in the Niger Delta because we have a track record.

The communities know and can identify how we have impacted positively in other communities that we have worked with, so whenever we are given a project in any community, they feel happy that Strides Energy is coming to work in their community. As a matter of principle, we do not leave any community the same as we meet them. We have done skill development and provided portable drinking water in communities where they do not have such.

It begs curiosity; how is it possible that, according to the projections you cited, and despite the threat of shale oil being developed by the US and China, it is projected that oil price will increase?

The global economy is growing, although there had been a down turn, what we call a melt-down. Most of the countries that suffered the melt-down are coming out of it. The American economy is witnessing growth again, Western Europe is beginning to come out of the woods and the Asian economies are coming up strong. You can see that even in Africa, there is tremendous economic growth. With all these, comes an explosion in energy consumption and what the International Energy Agency is saying is that, economic expansion, in this period, is more than enough to take care of the increased supply of oil and gas resulting from the shale gas. There is more need to maintain the price of oil where it is, and if enough supply does not come in, which means that if reasonable growth doesn’t come from even the existing producers now, the price will continue to rise, because just like shale gas is coming in, Production from some existing major oil and gas fields like the North Sea and Golf of Mexico are on the decline. The interplay of these factors gave rise to the projection that there will be increase in prices of oil and gas during the next 25 year. Though studies are on-going on what will happen in the years ahead; for now, we have a clear evaluation of what is expected in the next 25 years.

What then is your final word for Nigeria’s oil and gas sector?

The oil and gas sector has the potential for taking the Nigerian economy out of the woods. However, we need the right strategy to leverage on this and diversify our economy. Although, the oil and gas sector is not a massive employer of labour, it is a massive provider of financial resources for any nation to develop other sectors. If you understand things in this light and make optimal use of these resources, the country should be able to take its people out of poverty.

I will also like to say that the Nigerian content policy is not really meant to keep the foreign players out of the industry in Nigeria, as some people think, rather, it is meant to create a synergy for indigenous companies to also play alongside multi-nationals. So, the model has to be for the international companies to form strategic alliances with the Nigerian players. In the process, the Nigerian players acquire key technical know-how, what some people call technology transfer, and the foreign companies also make profit. It is meant to be a win, win situation and that is why everybody should encourage it.